Business financing statistics indicate that 77% of startups were bootstrapped from personal savings. And with 69% of American entrepreneurs starting their business at home, bootstrapping is more common than ever.
But with less than 50% of startups making it to the fourth year, entrepreneurs are wary of about bootstrapping their business—and rightly so.
But there's some good news. Experts suggest that bootstrapped businesses are more likely to succeed than those funded by external investors. The reasoning behind this is that bootstrapping startup founders are more likely to work hard in their startups to recoup their investment.
But exactly how can you make it as a bootstrapped startup?
Read on to find out the top bootstrapped startup founder tips for stating a business.
What Is a Bootstrapped Startup?
Bootstrapped startups run on funds from the founders’ personal savings, earnings and investments. So instead of seeking initial investment funds from external investors, founders of bootstrapped startups raise the money among themselves. Some bootstrapped startup companies run on pre-order sales or initial product and service purchases to fund business operations. Either way, there are no loans or investors involved in bootstrapped businesses.
For example, inBeat, a database of influencers (Tiktok and Instagram), has been bootstrapped from the group up. The founders closed their first clients before even building their software. Every startup should do so to help bootstrap their business.
Why Bootstrap?
The biggest advantage of bootstrapping a startup company is the amount of freedom it gives you as a business owner. Bootstrapping gives you full control of your business decisions and allows you to run your venture exactly how you want. You’re in charge of all day-to-day business operations, and your employees only answer to you.
With investors, you have someone to answer to, and this limits your freedom.
Also, if fail to live up to their expectations, they might stop funding you—something that can sink your business almost instantly. Why lose one of the main advantages of becoming an entrepreneur by letting someone dictate how you run your business?
That aside, outside investors always demand share equity to invest in your venture. While this can be helpful, issuing too much share equity can leave you exposed to hostile takeovers in the future. You don’t want to build a company from scratch only to be shown the door several years down the line, do you? When you bootstrap your business this possibility is much lower.
How Can You Steer Your Bootstrapped Startup to Success?
We asked successful bootstrapped startup founders for their blueprints to success and summarized them into 7 top tips.
Here’s how to bootstrap your startup business successfully:
1. Compute Your Idea’s VRIN Score
When brainstorming your business ideas, go with those that will generate cash flows quickly. Remember, bootstrapped ventures need almost immediate cash flows to stay afloat. That’s where VRIN analysis comes in.
Performing a VRIN analysis allows you to identify business ideas that will generate quick cash flows. “V” represents the value of the idea. That is; a service or product that many people want. “R” represents rarity, which allows you to find products and services that aren’t already flooding the market.
“I” denotes inimitability, which means that your idea consumer can’t create the product or service you’re considering on their own. The “N” part of the VRIN analysis stands for non-substitution and allows you to select products or services with least competition.
When calculating the VRIN score of a prospective idea, rank every factor on a scale of 1 to 10. Next, sum them up and compute the average score. If it’s less than eight, the product or service in question will take a long time to provide a positive cash flow.
2. Invest in Talent
For all startups—both bootstrapped and equity funded—nothing is more important than the talent that makes everything happen. As such, you need to cut your costs on unnecessary expenses and so you can invest in talented employees. “I cannot stress how important investing in your talent is and caring for them regardless of output. Your people make the difference between a good organization and a great organization” stated Ben Tejes, co-founder of the Chapter 7 Means Test Calculator.
Sometimes, this might mean foregoing physical offices for virtual offices for bootstrapped startups. These allow you to secure the best talent from all over the world in the most cost-effective way. They also allow you to secure a larger team, which is the ultimate catalyst to your company’s bootstrapped growth.
3. Secure Mentorship Services
One of the disadvantages of bootstrapping a business is that you don’t get the mentorship provided by investors and venture capital firms. When venture capital firms and investors partner in your startup, their main aim is to help you generate more revenue. To achieve this, they provide you with mentors, financial experts, and startup gurus.
But with a bootstrapped business, it’s up to you to find these services on your own. Luckily, you can secure mentorship services on the cheap or for free with a bit of research.
When doing this, find mentors who understand your industry, and what it takes to make an impact there. Also, prioritize mentors whose package includes guidance on leadership skills, because you’ll need those to run your team efficiently. This service is a perfect example of such mentorship programs.
4. Choose Your Co-founder Carefully
As a bootstrapping entrepreneur, you need different perspectives to steer your company in the right direction. That’s why you need a co-founder.
But simply having any company co-founder isn’t enough.
You need someone who complements your skill set because both of you will handle most of the work when starting out. That will make it easier for you to split the work between the two of you, which will keep hiring expenses low.
5. Prioritize Functional Over Fancy
Bootstrap funding is always limited, and this leaves no room for being fancy. As long as something gets the job done, don’t overspend to make it look good.
For instance, opt for a functional office instead of a posh one. Also, don’t pay for Quickbooks and Dropbox when you can use free versions. Cut costs further by buying refurbished computers instead of the latest MacBooks.
These are just a few examples of cutting company costs when operating on a shoestring budget. There are tons of other ways you can cut costs by prioritizing functionality over being fancy while bootstrapping.
6. Cover the Legalities Early On
You need to protect your intellectual property so someone doesn’t steal it once it starts to make money.
As such, you need to take care of copyright legalities as before you launch your business. This means copyrighting everything from sketches and mockups to product documentation during development stages. It also means using confidentiality agreements during planning phases to ensure that what you discuss can’t be used elsewhere.
7. Swap and Barter
You might not know it, but you have skills, knowledge, resources, and business connections that other entrepreneurs might need. The reverse is also true.
As such, find out what other business owners in your industry need. If there’s something you can offer them in exchange for what you don’t have, contact them and see if you can do business. That includes small things such as swapping social media posts or connecting them to a particular business contact.
Bottom Line on Investing in a Bootstrapped Startup
Regardless of how many failure stories you might have heard, it’s possible to launch a bootstrapped startup successfully. It's not the easiest way to start or run a business, but it can be the most satisfying option with a lot of upside.
But, keep in mind that you’ll need lots of patience, discipline, and most importantly, hard work when bootstrapping a startup as a founder. So don’t start your bootstrapped business with the aim of making quick, easy money. Not only will this lead to frustration, but also set you up for failure.
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