What Is Bootstrapping, and Who Chooses It?
Bootstrapping is an independent financial option to finance a business venture without external investors' help. The term originated from the expression to pull up one's bootstraps, that is, to carry one's own weight. In finance, it means to provide all the necessary funds for the business by yourself. Statistics on startups have shown that over 80% of startups and small-scale businesses started via bootstrapping as a primary finance source.
The onus falls on the entrepreneur to carry the financial burden of the company. The entrepreneur has complete control over the entire business, and as a result is under no primary pressure from investors and stakeholders.
Two things to consider when adopting bootstrapping. The first is company size and lifespan. Smaller business owners naturally turn to bootstrapping due to lower capital demands; their business runs on a modest amount of capital due to the small size of the company. Established businesses also tend to adopt bootstrapping to pay their employees' salaries from their own coffers.
The second is the aim of the business. An entrepreneur who does not want to give up equity on his trade can adopt bootstrapping. A small business may be established to hire 50-100 employees, while a startup has a projected employee count of about 500. These numbers make a huge difference. Due to their high ambitions, startups tend to experiment first by financing via bootstrapping instead of partnering with an investor. Startups value the enterprising opportunity available in self-financing.
The ways entrepreneurs obtain bootstrap funds include internal business optimization, external financiers, customers, business partners, employees and owners. The phases are the beginner phase, where financing comes from credit, friends and family; the customer phase, where funding is obtained from buyers, suppliers and clients; and the credit phase, when a company employs more workers and attracts venture capitalists and other investors.
Bootstrapping is not meant to be the only funding source for a business, as it is only viable for the short run. A company that wants to go far will have other sources as well. However, it is a recommendable choice for entrepreneurs to understand better how to run a business and manage the risks involved.