Is It Smart To Bootstrap?

A common thing for new entrepreneurs to do with funding a new business is bootstrapping their start-up, instead of taking millions in funding from a venture capital firm and no money from angel investors. This is just how most businesses start, whether or not the entrepreneur is looking for money, it just might not get to them. Many people have created great businesses without taking a dime of funding from a venture capitalist. In fact, I believe that when an entrepreneur takes money from a venture capitalist it lessens their energy they put into the business. When an entrepreneur has to look at each penny spent, they watch each and every move their business makes, which reduces the chances for errors.

It is well known that a company who gets funding once, is bound to need it again. This is largely due to the fact that VC funded companies burn through cash by hiring a large staff, getting a nice office, and most importantly, NOT looking for freebies. When an entrepreneur is bootstrapping their business, they look for more "free" stuff that is available than things they have to pay for. For instance, lets say "Joe" is starting a new business and he needs to have some business cards made up. If Joe had taken money from a venture capitalist, he probably would have picked up the phone and called the first business card company that came to his mind, but since he is paying out of his own pocket, he knows that he needs to get some business cards, so he waits a few days and sits on the thought when he comes across a company that will give 1/2 of his order to him for free. It might be a little cost, but every penny adds up, in business. Seeking opportunities to save sets the entrepreneur ahead who bootstraps, instead of being funded.

While an entrepreneur who is bootstrapping, might not have cash, a VC funded entrepreneur will probably end up failing because of the way they have cash. If an entrepreneur who is bootstrapping is urgently in need of money, they will scrape every dime and nickel they can find and make it last. If a VC funded entrepreneur is in urgent need of cash and no venture capitalist is willing to give it to them, they will probably give up and fail. The mindset changes for a lot when they receive funding and their ability to survive with nothing will be reduced greatly.

To be fair, lets discuss the negatives of bootstrapping.

Outsourcing comes into play greatly when an entrepreneur is bootstrapping. There are some pro's and con's to outsourcing, but the overall idea of outsourcing elements of a business is that outsourcing needs time. While an entrepreneur might not be stuck doing a job they outsource, they will need to check up on progress, discuss exactly what they want and so on, for the end result to be positive. You might have heard the saying which goes like: "If it's going to take up all my time, I might as well do it myself." Which really shows that time is money!

Things also get delayed when starting up a bootstrapped business, since funds might not be available. This is probably, by far, the most important thing to realize when bootstrapping. A lot of things do get done faster when some capital can be allotted to them, but again, sometimes money doesn't do everything. Especially when dealing with free services, time can be a huge factor. When companies offer free products, the time frame to produce the results usually increases, than if it were a paid job.

Compromised quality is also a concern when bootstrapping. A lot of entrepreneurs feel like cutting corners when they are in the infant stages of their business, but don't realize that the mindset the customers develop from the start, is the mindset they will have for a lifetime when thinking about the entrepreneur's business. Entrepreneurs have to make an excellent impression with the end consumer the first time...the second time...the third time...and a lifetime.

I personally know a lot of people who started their first business off of their friends VISA, MC and AMEX. They racked up so much debt and were concerned that they would never see out of it, but eventually most of them were able to see through the tough bootstrapping phase, to success. At the same time, some failed, continued to fail for awhile, then found alternatives to their funding issues. However, I DO NOT endorse credit card borrowing, it is probably the WORST form of borrowing out there, a lot of people can't find their way out once they are trapped in the system of credit card debt.

It's also good to note that bootstrapping doesn't mean that an entrepreneur with no money is doing it. A lot of successful people fund their own projects just because of the end result: Not giving up stake in the company they are starting. Obviously the venture capitalist that is funding a company is going to look for as much stake as they can, but when a bootstrapper put in all the effort in the infant days, they are the ones who enjoy paradise in the end days- unless their company is in a loss.