One of the biggest questions every entrepreneur is faced with when starting out is how to fund their venture.
Bootstrapping means starting a business without any external funding. This means no help from venture capitalists or angel investors. It also means that most of the money made is reinvested back into the business.
Bootstrappers depend on personal income, savings and sweat equity. They function with the lowest possible operating costs and focus on fast inventory turnaround.
There are an array of triumphs and challenges for those that decide to take the bootstrapping route. Let’s take a closer look.
It goes without saying that one of the biggest pros when it comes to bootstrapping is control. Business owners have zero obligation to investors, equity firms or a board of directors. Often, investors and equity firms will have their own interests, and motivations when they decide to invest in a company. And investor interests may not match up with the business owners.
With zero outside influence, bootstrappers can focus on what their company does best. It also goes without saying that instead of chasing investor money, they can focus on the business development process, which will make their startup unquestionably stronger.
With no pressure to please outside investors, bootstrappers can focus on driving innovation within the company. This means they have free reign to invent, re-invent and innovate their own vision. It’s also important to note, that when your savings – and in some cases home – are on the line, the pressure is on to constantly innovate.
One of the main reasons businesses fail is because there is not enough money to grow. Launching a startup with no funding also means that a successful profit plan must be implemented early to help keep the company afloat for the first few months. In some cases, these profit plans can be hurt future growth down the track.
There’s no denying that venture capitalists and angel investors can add credibility and valuable expertise to your company. Because of the money invested, they have their name and wallet on the line. Having the backing of credible investor/s gives many potential customers the confidence to buy in. Self-funding, on the other hand, may illustrate a company’s lack of business expertise.
Limited funds means self-funded startups rely on organic growth, which can be long winded to say the least. Revenue is needed for research and development, hiring and more importantly, marketing. In some cases the reliance on organic development means innovative ideas are left to stagnate.
Re-mortgaging the home or borrowing money from friends or family to start your business is stressful to say the least. In most cases, a move as such requires a complete lifestyle change. Having that pressure to succeed means devoting long hours in the office which undoubtedly puts extra pressure on friendships, relationships and a person’s general wellbeing.
To make sure you are structuring your new business the right way, get the right advice from the start and end up where you want to go.
At BDH Leaders, we advise you on the best growth strategy for your business no matter where you are starting from. View more information on our business services here.