What Is Bootstrapping & Should You Bootstrap Your Business? [Pros And Cons]

What Is Bootstrapping & Should You Bootstrap Your Business? 

Bootstrapping a business is slowly becoming the new trend.

Previously, you'd see startups racing to reach investors and raise millions of dollars to grow their businesses.

They would pitch hundreds of investors and as soon as they finally find a match, it's like they've already won.

After all, the business with the most money usually wins, right?

It's true in a lot of cases - my article on why 90% of startups truly fail outlines the other reasons.

However, in many cases, having too much money has been the downfall of the business.

So what is bootstrapping?

Very simply, bootstrapping a business is growing a business from scratch using only your own capital and savings.

From here, you're then able to use what the business generates to build it up and make it compound.

The cool thing is, when you start making sales, you'll be able to get a flywheel going, and your business will be able to start growing rapidly.

My latest startup, Hawk Prospecting, is a bootstrapped business and will stay that way for a long time.

We're going to soon be discussing the pros and cons of bootstrapping, however, it will not always be a great fit for every business.

Example of bootstrapped businesses

You might be thinking: "Has there been any successful businesses that are bootstrapped?"

The answer is yes.

There have been tons of successful businesses who have bootstrapped their way to success - some are even the biggest businesses in their industries.

The simplest example of a bootstrapped business is Mailchimp.

Mailchimp is an email marketing software that gets over 24 million website visits per month.

They're completely bootstrapped since their inception back in 2001.

Not fair! That's before I was even born.

On the other hand, arguably their closest competitor, Constant Contact, is a fully-funded email marketing software that gets over 20 million website visits per month.

Here is a very simple split that shows you a bootstrapped business going had on with a funded business.

In fact, I didn't even know about Constant Contact until a few weeks or months ago.

However, everyone knows Mailchimp.

This goes to show how successful a bootstrapped business can be - it just takes a great product and better marketing.

Going on both sites, I'd prefer to use Mailchimp over Constant Contact.

Plus, Mailchimp even has a free forever version which Constant Contact does not have. 

Are there other options?

Growing Condensr, my previous startup, I wanted to raise funding to grow the business. 

The reason I thought that raising funding was important is because I had a massive vision for the business which needed outside capital to flourish.

I wanted to get Condensr in the hands of everyone in the world who valued reading and self-development or even thought of reading.

Other than this, my final options were to either borrow money from banks or lenders or to run a Kickstarter campaign and raise funding through crowdfunding.

Both were terrible decisions in my case.

Borrowing money is never a smart idea. Essentially, you never know if your business is going to succeed, and you also don't know how much will change about your situation or business.

It's probably best to borrow money only when you have a proven system of generating cash flow from your business.

On the other hand, crowdfunding rarely works for things like software or mobile apps - even then, it would cost a ton to make it work.

See crowdfunding is not as easy as throwing your idea up on Kickstarter and watching the money roll in.

You have to strategically set up the campaign, made the ads emotional and enticing, build up an email list before the campaign, spend tons on advertising, etc.

It takes a ton of money to maybe make something on Kickstarter and crowdfunding in general.

All of a sudden, bootstrapping seems like the most attractive idea, right?

Pros:

In this article, we're going to be discussing the pros and cons of bootstrapping your business.

By now you should understand what bootstrapping is, and your other options aside from bootstrapping.

However, we must first learn about the pros and cons of bootstrapping before you're able to make a concrete decision on which direction you'd prefer to go with your business.

Here are the pros of bootstrapping your business.

Control

When you bootstrap your business, you're essentially in control of the whole business.

This means that 100% of the business is under your control.

You're not giving away 5%, 10%, 20%, or whatever it may be to an investor.

You're keeping everything that the business makes and all the decisions that happen in your business are yours to make.

This is great because there won't be times where you and someone else, a partner or an investor, are arguing over a direction the business has to take.

The decisions that you make are final.

This might be a great thing for a lot of people - In fact, starting a business, lots of people fear having to trust others with their businesses.

Maintaining all the control over the business and its operations is a great thing because you're not going to have to give anyone the keys to the kingdom.

Having 100% control of the business will mean that everything from where the money is spent, what to focus on, who to hire, who to fire, where to market, etc, is all on you.

Most people, unless you're Elon Musk, are not going to be able to handle every aspect of the business.

That's why it's important to hire soon - it doesn't mean you're giving away shares in your business, but you're just getting more and more people on board with the vision and to help you grow the business.

No business will ever exercise its potential without hiring outside talent. 

Revenue/profit

One of the best reasons you're going to want to bootstrap your business is because it means that all the revenue and profit you make are in your hands.

You're able to do whatever you want with that capital.

You can cash out on a 'company car' or a 'company office' (aka a massive house for yourself).

Or, if you're a little more disciplined, you can invest everything into the business to exponentially grow it.

With Hawk Prospecting, I'm firstly looking for the cue that makes people switch to a paid plan.

This is going to involve talking to the users on the app and learning about their needs, and problems which my product can fix.

If my product can be put in place as a way to solve those problems, they'll be willing to pay for it.

Once this is done, we can start looking into ways to utilise other growth channels for Hawk Prospecting.

This could be paid advertising, influencers, YouTube, etc.

When you, let's say, have investors, you'll have much less freedom over where your capital is going.

On top of this, when you sell the business, you'll have to give out X% to the investors based on their investments.

For example, if you had 3 investors with a total of 30% in the business, you can only keep 70% of the final payout.

However, when your business is bootstrapped and you decide to sell it, you're keeping 100% of the payout.

More on the negatives of this when we speak about the cons.

Less stress

Someone once told me that finding investors for your business is like buying yourself a boss in your own business.

The sound of that grossed me out - it was the one thing I was running away from.

I didn't want to work for someone else, I want the freedom to do what I really want to do.

However, when you have investors, you essentially have people that you need to pay back.

These investors have put up a lot of money to help your business get off the ground and grow.

The reason they invested is that they saw potential in the business and had faith that you're going to be able to come through on your promise.

This means that It'll most likely be very stressful having investors constantly nagging you and keeping you on the ball.

After they've given you the money, they expect you to deliver on what you promised them.

When things are not going well, you'll start to feel the stress.

Although it would still be stressful when things aren't going well, you'd be a lot less stressed knowing you have investors that are relying on you to pull through.

Some people would say that the stress is good and that when you're cornered, you're more likely to find a way out.

For someone like me, however, the added stress is the last thing I'd want.

Cons:

There were some of the pros of bootstrapping a business.

For many people, those would have been enough to push them into making the decision to bootstrap their business.

However, there are some cons that we must not dismiss.

Here are some of the downsides of bootstrapping your business.

Slower growth

When you raise money, you have a ton of money (usually 6-9 figures) to throw around and test with.

This will mean that you're able to spend a lot of money on hiring people early on, running tests and experiments to reach the stage of product/market fit.

Once you've reached this point, you're essentially given the green light to take this thing to the moon.

That is the point I'm trying to currently reach with Hawk Prospecting.

However, since my business is only bootstrapped, I won't have the luxury to go at 1000 miles per hour.

At the start, especially, I'm probably going to be walking before I can run - or fly in this case.

I wouldn't have 100s of thousands or millions of dollars at my disposal and so it's going to take much longer to grow at the same speed as funded startups.

I'm not going to be able to hire talent for a while, not until the business generates some sort of revenue.

I'm also not able to invest in paid marketing as of yet since I haven't even found product/market fit yet.

This, however, could be a good thing for Hawk Prospecting.

I'm able to spend more time manually talking to customers and learning about their needs.

I'm able to be more tactical and so I can learn and iterate Hawk Prospecting to fit the needs of my audience perfectly.

However, the lack of money and employees will most likely mean that it takes me longer to reach the same point as a funded startup.

Might never grow

This one here is very scary and a nightmare for many businesses.

There is a good chance that, actually, you might never even grow.

This is less because of the capital alone, but other reasons too.

Most founders are not cut out to be founders - you need to learn about where you'd perform best.

For example, founder of Appsumo, Noah Kagan, hired a CEO that took Appsumo to almost $100M.

Noah was not the right person to do that, but he was the right person to start the business.

It's all about your skills and where you'd naturally perform best at.

My previous article on shiny object syndrome outlined this in more detail.

You need to put yourself in a position where you thrive - it's counterintuitive to force yourself to do something you're naturally disadvantaged in.

When you're bootstrapped, it's harder to put yourself in a position like this because you have to wear all the hats in the business.

You're the CEO, the CMO, the CTO, the COO, the CPO, etc.

Unless you have a team that you're starting the business with, it's going to be very hard to do everything necessary to win alone.

This often overwhelms founders, and they start going into a downwards spiral.

They don't know what they need to do to make the business successful, and so the business doesn't live to reach new heights.

Starting a business, bootstrapped especially, is all about the delicate balance between strategy, patience, and determination.

You need the right strategy and goals to grow your business.

You need patience for results to start coming through - you're bootstrapped so it may take much longer.

You need to be determined and make success your only option.

Competition

In most cases, you're going to have a lot of competition.

Many of those competitors are most likely going to have some sort of funding.

This is because they still believe that funding is the best way to grow businesses.

This means you're immediately thrown in the deep end with the sharks.

Hawk Prospecting has a lot of competition.

Being a bootstrapped business, It's important I make this part of my story so that people can resonate with that.

It's a lot more difficult for me to compete with million-dollar monthly advertising budgets.

I'm immediately starting at a disadvantage, however, I know that my product is superior to everything else on the market and so it's only a matter of time before we're able to get the feedback necessary to improve the product and scale it.

Today, there's space for more than one winner.

It's not a 'winner takes all' type of world.

Don't get me wrong, however, there are some monopolies like Google which literally have over 90% of their market's share.

This is when it's a con to be bootstrapped.

When you're going against giants, then you're most likely going to struggle to make an impact or dent in the market.

Those were the pros and cons of bootstrapping your business.

Overall, I believe that in many cases, it's better to bootstrap your business.

However, it all depends on your goals and vision for the company.

I just want to build a massively successful business, whilst have the freedom to do anything I want - this most likely doesn't mean funding.

If you're looking to take on Amazon, you're 100% going to need funding.

Figure out your reasons, and make sure you have a strong WHY to keep you going on matter the goal.

Are you going to bootstrap your business, or are you going to raise funding?

Let me know below.

Till next time,

Mohamad