You may have heard of people talking about ‘bootstrapping your business’, but what does it actually mean?
The term ‘bootstrapping’ is not a fancy new idea but is actually over two hundred years old. It comes from the phrase ‘Pulling oneself up by one’s bootstraps’, referring to high-top boots being pulled on by tugging at their ankle straps. What it means nowadays is doing something on your own, without any outside help.
And in a business context, when you ‘bootstrap’ your business you start up and grow your business using no external money such as business loans or equity. All you use is your own money, maybe from personal income or savings, and hopefully from the money your business makes (also sometimes referred to as ‘organic growth’). You’ll leverage (i.e. supplement) your money with some grants if possible and you may at some point take on a personal loan to help, but over time the plan is for your business to become self-sustaining through sales.
Bootstrapping also means starting up and staying lean – you are really canny and careful with the money and any other existing resources you do have (which is usually a very good approach in any business!). It’s about eking out what you do have, as much as you can, to get the job done by keeping costs low and not splashing out on any unnecessary expenses or premises.
It’s also about thinking very carefully and appropriately how you spend your money. For example, if you are selling a premium product you may need to spend a bit more on high quality design to present the right image for your business, but if you are selling lots of product at a very low cost, you maybe don’t need to spend as much money on expensive design costs.
A bootstrapped company tends to grow a bit more gently with a quiet self-assured confidence, and usually at a slower rate than businesses supported with external funding. But that’s ok as you want the company to be around for a long time and, as an owner, you are comfortable and content with that. Of course, your feelings and growth ambitions for your business may change over time and you can certainly change your mind about taking on external funding!
Research by Women’s Enterprise Scotland found that in the last 12 months in Scotland, 65% of respondents used their savings to support their business. Start-ups are often even more dependent on using the founders’ own money. But does it actually work?
Well, yes and no. Bootstrapping has its advantages and disadvantages (which we will come onto later) but many people have been incredibly successful with a bootstrapped business, such as Sarah Blakely who founded Spanx, the slimming underwear company (who doesn’t love a bit of Spanx now and then?!).
In 2000 Sarah started her company in her apartment with $5,000 of personal savings and wrote and filed her own patent application to save on legal fees. 20 years later her personal fortune is estimated at about $1 billion and she still owns 100% of the company she started. Not bad for a bootstrapped business! Clearly not every bootstrapped company will be as wildly successful as Spanx, but it certainly shows you what is possible.
Bootstrapping can however be quite a tough way to fund a growing business. Whilst you retain all the control and can continue to make all the decisions, it can cause quite a lot of personal financial stress and can limit your company’s growth.
The external help and resources you need in your business may change over time. As we mentioned earlier, most start-ups bootstrap initially, but many do eventually take on external funding. What’s important for you at the early stage is to understand the advantages and disadvantages of bootstrapping and then you can work out if it’s right for you.
Think carefully about your business as you look at the following key points. This will help you understand if you want to bootstrap at the start of your business, all the way through growing your business, or there might be a point in time you need more money to help you grow. Or, you may need to go a lot faster earlier, so bootstrapping is not for you.
Remember though that not every business needs to grow into a big business. You might be very happy with having a smaller business that you can comfortably manage and have a really good work-life balance. What’s important is what you want to do with your business.
Advantages of Bootstrapping
- You’re In Charge: you’re the boss, you make the decisions, you own it 100% and there is no external pressure on you
- Low Cost: it’s cheap and fast to get up and running using just your own money
- Pace: you choose the pace for your business that suits you
- Smart Spending: you get really good at carefully managing money
- Versatile Skills: you become very resourceful and develop a ton of new skills as you creatively solve problems
- Selling: no requirement for you to sell the business in a set timescale – you do what you want with it for as long as you want
- Values: you can ensure that the company stays true to the values and culture that are important to you
- Personal Accomplishment: what a great feeling to be able to say I built this all by myself!
Disadvantages of Bootstrapping
- Lack of Money: you may not have enough money to do things at certain times – this can stifle the growth of your company and even lead to failure when you cannot pay your bills on time
- Slower Growth: less money to spend on things like marketing, product development and staff can all have a huge impact on the growth of your company
- Long Hours: hard work and long hours as you have to do many more things yourself to keep costs down, and that may not be the best use of your time
- Personal Stress: it can be quite stressful to shoulder everything yourself
- Less Time for Admin: less time available for basic but very important tasks like financial and legal work, documenting processes, etc., which can cause you huge problems further down the line
Now you know a little more about bootstrapping you can have a think and see if it’s right for you. And if you need any more information, contact us for signposting to more help.