Are you thinking of bootstrapping your business? A bold choice, for sure. But is it the right call? Considering the pros and cons of bootstrapping a startup can give you the big picture. Choosing to fund yourself comes with a ton of benefits. But you cannot ignore the drawbacks that are also a part of the process.
Bootstrapping is appealing to many because you can develop the business the way you want without incurring much debt. It takes away the pressure from investors, which is a plus. But at the same time, it can also be a stressful venture to build an entire business from scratch with no outside funding. If you are still not sure which way to go, this post will be your guide to weigh the pros and cons of bootstrapping a startup.
Pros Of Bootstrapping Your Startup
You are the boss
As a bootstrapper, you will retain 100% of your business ownership. As you have complete freedom of action, you get the final say in running the startup without pressure from investors. Also, you do not have to miss out on equity in your business. The benefit still applies even if you are a co-founder. How so? The reason is that your share of the equity will still be far more extensive than if you go through numerous fundraising rounds and keep diluting your ownership.
You get to be in control
You get better control over your business’s direction with you in charge. That means you get several benefits like:
- You get to remain independent of venture capitalists or investors who will eventually end up wanting to call the shots
- Avoid clashes with investors over differences in views and goals
- Not have to get approval from investors to act on your decisions
- Not have to meet their demands or expectations
- You get the creative freedom you want
Whether you want to create an alternate product design or even completely change your company’s heading, you can do that. It gives you the freedom to act upon your ideas, values, and views without the added pressure from investors behind your back.
Of course, even with raising capital, you may get super-voting rights that give you more control. However, if you value having control over artistic direction and decisions over anything else, bootstrapping your business is the right choice for you.
Less Stress with Limited debt
As a bootstrapper, you have the option to open a credit card to build business credit or make one-time purchases. Yet, your company does not have to depend on outside funding to proceed. You will be able to pay off any debt quickly. On the other hand, you will not have to worry about owing on a massive loan if things do not work out according to plan.
You get to keep your business
Was it always your dream to grow your startup as a lifetime business or even make it a multigenerational business? You can achieve this dream by bootstrapping your startup. It is, in fact, the best option you have if you want to continue and not have to give up in 10 years. You do not want to let investors set a time limit on your ability to make a significant profit.
Sense of Accomplishment
It is certainly not the most obvious advantage. Still, you cannot undermine the sense of accomplishment this experience can give you as an entrepreneur. You will know what we are talking about when your startup grows and becomes profitable. Seeing the growth of your hard work will encourage you to work harder and achieve more. One day you could even sit by a fireplace and tell your grandkids how you built an entire business from scratch.
You have no other choice but to build a business model that works
You know that bootstrapping is a business from scratch, with no funds, no investors, no nothing. In this scenario, the owner has to somehow make the impossible happen. This challenging situation is an opportunity for a bootstrapper to build a business model that works well quickly. In such cases, you focus on a single profitable product or service while maintaining a strict budget and building customer loyalty. If you succeed, your startup will produce cash flow and profits in a short period of time.
You get to focus entirely on the business
As an entrepreneur, your primary focus has to be on creating a product that customers want and like. However, how often can you focus on your goal when you are busy trying to impress investors and fighting for your creative freedom? With a bootstrap startup, you only have to focus on impressing your customers. You can focus on being successful in the direction you want to take. And all of these factors add up to the fact that if you can successfully bootstrap, you will have a great product and loyal customers.
Cons Of Bootstrapping Your Startup
Now, we have come to the second section of our “pros and cons of bootstrapping a startup” post. This section helps you really understand the cons of bootstrapping a startup in detail. Let’s review them now so that you can weigh the pros and cons and come to a decision.
Slim chances of survival
Bootstrapping is not the easiest choice out there. You may feel like you are walking on thin ice, knowing how low your chances of survival are. You cannot afford to make many mistakes. The accuracy of your decisions essentially decides whether your business survives. You may have to make tough calls and change routes, especially when it comes to financial issues.
It is a well-known fact that most businesses collapse when they run out of cash. Why? Because you can create a terrific product or service that others will love, but it will not be sufficient to ensure survival. If you are in a tough spot for just a couple of months, your startup may never reach its full potential. At this stage, meticulous planning and budgeting are necessary to find a way to survive. Budgeting may reveal that you will need to obtain outside capital, and if this is the case, you may need to persuade investors as quickly as possible to make a decision. This means you may have to be ready to present your story to investors to get their support.
You are taking a personal & financial risk
The most obvious con with self-funding your business is that you risk losing all the money you put into the startup. Bootstrapping means your entire startup depends on you. If you succeed, you gain profit, and if you do not, you lose it all. Suppose your business takes a hit at some point. It could be due to a lack of sales or an unexpected expense- it will directly impact you.
The situation can be even more challenging if you are not taking your salary as most entrepreneurs do during the first few months of the startup. In that case, if you fail, you will have to survive without an income. The financial risks to bootstrapping are huge, so you have to come up with a plan to move forward.
Expect to see slow growth
Why do most entrepreneurs go out to fundraise lots of capital? Well, that is to scale big and fast. Without outside funds, you cannot do much to serve your customers. By bootstrapping your startup, you sign up to proceed with minimum resources. It can cause your growth to be slow. Of course, you only have to wait until money starts coming in.You can then begin to invest in resources. However, know that it will take time and until then, you will have to adjust your overall projections.
You may not have enough time
As we mentioned earlier, with bootstrapping, you get the chance to focus entirely on the business without having to stray from the end goal over clashes with investors. However, you may not have as much time as you think in reality, and therefore, time is a factor to consider when bootstrapping a business. It can be tricky if you are in a situation where you cannot afford to give up your day job. That means you only get a little spare time to work on the startup. You may not be able to devote yourself to your business as much as you want. Unfortunately, that leads to your startup taking a long time to execute.
However, this does not have to be the case for you. You do not need to keep your full-time job until your startup is stable. You can still commit to working on your project. If you decide to do so, set some personal savings aside-not for the business- but for yourself. It could be your ticket if you ever need to back out.
Get ready to hustle harder
You can find a lot of successful bootstrap startup stories. None of which would have worked out without hard work. Bootstrap means you have to make the most out of pretty much nothing. So you will have to hustle harder, work extra hours, single-handedly tackle all issues and make the right calls as the owner. Since you do not have the budget for recruiting the best talent, you have to work with what you got. It would be best for the business if you could recruit people who are passionate about the vision and mission.
You have to stay organized
Being a bootstrapper means you have a lot on your plate. You are out there trying to make the best decisions, putting your thought, effort, and time into taking the business to the next level. With this workload, you may forget about teeny tiny but essential details. We are talking about taxes, systemizing processes, and bookkeeping.
If your books are not clean, it will cause trouble when filing with the IRS, trying to scale, and if you end up wanting to raise funds. Regardless of how busy you are with the startup, do not neglect these small but essential details. They can make a significant impact on every step of the way.
Networking can be challenging
Being a bootstrapper, you do not have to deal with investors, which saves you a lot of trouble. However, you will miss out on the incredible opportunities they bring to the table. Investors and venture capitalists are well connected. They usually offer strategic connections to more investors and possible team members. Plus, they can connect you to larger organizations and provide partnership opportunities to open up new markets for your product.
When you bootstrap your startup, you will miss valuable strategic networking connections. Besides, investors can provide advice, and their input could help your business thrive. As a bootstrapper, you do not have investors to back you up or help you with networking. So you have to make connections yourself. Great connections can be your best resources. So start networking to find yourself potential customers, mentors, and people who will help you spread the word about your startup.
Treinetic’s Final Thoughts on Pros and Cons of Bootatrapping a Startup
There you have it! This post helped you weigh out the pros and cons of bootstrapping a startup. So did you make up your mind yet? Bootstrap can bring many benefits and, unfortunately, some drawbacks as well. However, whichever path you choose- bootstrapping or investors- you will have to face both advantages and disadvantages. No approach is smoother than the other.
Ultimately, it is up to you to decide which direction works best for you and your business.