How to Decide if Bootstrapping is Right for You and Your Startup
To start, let’s talk through what bootstrapping truly means. Bootstrapping a startup means scaling your business with little to no venture capital or outside investment. It means relying on your own personal savings, alongside any revenue the company is able to generate, to operate and grow the business.
A few things to consider when you’re deciding whether to chase funding or bootstrap your business is your business model and where profitability comes from as well as where you are able to spend your time and focus as a founder – raising capital is a full time job. It’s also important to note that starting out as a bootstrapped startup doesn’t mean you will never raise capital. Most successful, self-funded companies will consider outside investors at some point. Typically, raising capital as a scaled bootstrapped company revolves around wanting to accelerate growth and fight off competitive threats. It also provides market validation and could potentially offer some liquidity to early, founding employees.
If you’re thinking about bootstrapping your business before considering taking outside financing, here are the top four tips to consider:
Bake Profitability Into Your Business Model: The best way to successfully bootstrap your business is to build profitability into your business model from day one – this might not be overtly obvious for the type of business you’re starting, but you should always think through how you could potentially drive revenue for a cash-flow positive product or service alongside something that might take longer to become profitable.
Talk To Your Customers: Consistently spending time with and learning from your customers is essential – this is where you need to be spending your time. Bootstrapping means maintaining control and scaling your company on your own terms, however, it also means you have to be scrappy with how you generate that recurring revenue. Keeping a pulse on your customers is how you’re going to deeply understand where your product market fit lies. Being quick to understand if the market isn’t responding the way you had hoped then you need to make a big product or service shift, or try something new.
Research and Take Advantage of Government Support: In Canada, there are many government grant programs and resources that support technology companies. Be sure to research and understand what government funding as well as large company grants and awards that could be used to help you bootstrap your business. There are many ways to access small buckets of capital through grants and awards programs without giving away a part of your business.
Prove Market Traction Before Asking For Funding: As you continue to finesse your product or service, build relationships with your customers and partners, and build out a reasonable team you need to service the business you have. With this, you’re truly developing a case study for proven market traction. Being tied to these three activities will allow you to uncover what you would actually need funding for to take your business to the next level.
Across the North American tech ecosystem, we often champion, celebrate and profile companies who raise significant capital. Although the ecosystem has changed its tune regarding fundraising over the past two years and we’re starting to recognize more bootstrapped businesses, fundraising is still something that is glorified for early stage founders. Bootstrapping should be just as glorified.
One of my favourite examples of a bootstrapped founder, that many people are surprised to learn about, is Spanx, founded and bootstrapped by Sara Blakely. Blakley didn’t take financing in her early days because nobody believed in her – and she had the grit and passion to handle things on her own. She kept her day job selling fax machines and went door-to-door to hosiery manufacturers trying to get them to produce her prototype. When they asked her who was backing her financially, she answered: “Sara Blakely.”
Instead of focusing on how you can raise the most amount of money as early as possible, be sure to consider all of the other avenues you have available to you to bootstrap your business in the early stages, to better understand what you might need funding for down the road.
Featured image by Glenn Carstens-Peters on Unsplash.
