Bootstrapping in Business: Is it Right for Your Startup?

Bootstrapping definition

What is bootstrapping in business?

Bootstrapping is self-funding your business. You use your own savings and earnings to keep the business afloat—through the highs and the lows—in the hopes of achieving success without a business loan or early-stage investors. To fund business expenses, bootstrappers tap into money on hand, including savings and personal credit cards, as well as 401(k)s, second mortgages, and, of course, reinvesting their income. They may also work a day job while they grow their small business at night, or vice versa.

Why bootstrap?

Pros And cons

Pros and cons of bootstrapping.

So is bootstrap financing the right option for your business? There are several pros and cons to consider when making a decision.

Pros of bootstrapping.

Self-funding a business allows for complete control of operating and growth decisions, which comes in handy in the following situations:

You have a client you want to drop.

If you’re self-funded, the only person you need to convince that you should fire that client is you.

You see an opportunity you want to pursue, like a service-for-equity situation.

The most famous example of this is the artist who took shares as payment to paint Facebook’s first office. His share wound up being worth over $200 million.

You have personal values or beliefs that you’re not willing to compromise.

This was the case with Chick-fil-A. In fact, the founder has forever forbidden the company from going public so it continues operating within its founding principles.

The dream of DIYing everything is strong.

It’s hard to ignore a great story of founders who grew an entire business themselves. Look at Gorilla Glue, which is still a family business, and Qualtrics, which was self-funded by two brothers for 10 years before selling for $8 billion in cash.

Cons of bootstrapping.

Allure aside, self-funding a company can be an uphill battle. One batch of supplies for a big project can exhaust a savings account, particularly when high inflation chips away at your budget, and running a full business as a side hustle can only take you so far. Those, by the way, are just the tip of the iceberg. Here are some other things you risk:

Burning out

Burnout is probably the most common danger of bootstrapped companies because it can lead to serious mental or physical health problems. And it’s not just burnout from long, lonely hours. It’s the stress of liquidating your investments, not getting the deal you were banking on, or simply having no time to yourself. This is particularly risky for business owners who work a day job and build their business during their off hours. While growing a side hustle into a full-fledged business can be done successfully, continuing this way too long can be hard to bear.

Running out of money.

It would be great if money were an unlimited resource, but it’s not. And unexpected expenses or increases in costs can wreak havoc on the best budget. The biggest shock? Sometimes it comes simply from the increased expenses associated with growth. Emergencies like property damage, illness, or other unexpected shutdowns can also thwart the best-crafted plans. If the only fallback is a personal savings account, staying in business may not be practical. Running out of money is one of the main reasons small businesses fail.

Not having the money to take advantage of opportunities.

A lack of capital can limit growth and the ability to seize opportunities, launch products, and take chances. For example:

• You may not be able to upgrade your factory without equipment financing. If you turn it down, your competitor will take it, upgrade their factory, and leave you in the dust. 
• You may be forced to let your best employee walk without taking a business line of credit to offset their new salary demands as your revenue grows. If you don’t pay them what they want, you’ll take a hit on irreplaceable talent, which will eventually affect the customer experience.
• And what if you’re invited to pitch what could wind up being your best client, but you need $20K to do it properly? Without a short-term loan, you may have to pass and always wonder what could have been.