What we're talking about
Bootstrapping is the term used when you start a business or side hustle solely using your own money (and subsequent sales revenue), rather than any external funding. Forget the eye-catching headlines about big raises and venture-capital funding; the vast majority of successful businesses start this way, relying on personal savings and cash from early sales to get off the ground. That normally means growth is slow, as you keep spending to a minimum. How much you can invest is tied to how much cash you have to begin with, as well as your ability to generate customers and bring in sales revenue.
Why it's important
One of Courier's core principles is to get as far as you can with what you've got – and bootstrapping is the embodiment of that. If you're growing by revenue, sustainability is being built into your business model from day one. You're generally forced to be more resourceful and not spend beyond your means, putting your money to aspects with maximum impact. With an endless to-do list, bootstrapping often means prioritizing building something viable (instead of, say, finding investors). Crucially, it also gives you total control on both the direction and growth rate of your business.
That being said, the financial and emotional pressures can be huge. If you start this journey without the necessary prep and foundations in place, there are both personal risks (debt, stress and burnout) and business ones (failure). You'll need to be in a sound economic position first, have relatively low start-up costs and have firm control and oversight over the ongoing financial situation of your business.
Things to note
There are three key stages. The majority of businesses will go through three general stages when they're bootstrapping, as outlined by finance website Investopedia. The beginning stage (which this guide is focused on) is when you decide to get moving using your own funds. The customer-funded stage involves reinvesting your revenue to grow your business. And the credit stage is where you look to turbocharge growth and focus on specific activities like hiring, upgrading equipment or expansion – this might require external financing.
Early revenue is the priority. The promise of future returns might be enough for businesses backed by venture capital but, if you're bootstrapping, you'll soon be struggling without money coming in – particularly if you've got lots going out. While you can barter and look to make savings on expenses, fundamentally you need to focus on sales and cash flow to keep afloat. This principle should shape your mentality going in.
Be prepared to be flexible. Slow growth is a fact of bootstrapping life. However, you may find that, after a while, your spending is outpacing your growth and funds are starting to run dry. This doesn't necessarily mean your business can't be successful. Any indications of customer demand, however small, have value – it might simply be that you need increased investment to reach a sufficient quantity of people. Alternative financing routes may be able to help tide things over until the business can sustain itself.
How to work out if bootstrapping is for you
1. Assess your personal financial position. It's basic stuff, but the natural place to start is confronting where you're at financially. What money do you have available that you'd be willing to invest into a business (and potentially lose)? What are your ongoing financial responsibilities and have you accounted for them? What level of basic income do you need to live? How long can you survive with no income? What's your risk tolerance?
2. Assess what's typical in your sector. It's worth getting an understanding of industry norms. Delve into how five or so competitors in the space were funded and evaluate how competitive your field is overall. If there's a lot of innovation, for example, you might need rapid growth to get to market quickly or gain customers – and bootstrapping won't be right.
3. Get clear on your business model. Bootstrapping works best with certain business models: ones that don't require a huge amount of spending to get the product or service out into the world; or ones that, once developed, don't require much by way of maintenance costs. This information should all come from a well-constructed business plan. Your business model needs to prioritize cash flow: money needs to come in often and be easily extractable for reinvestment.
4. Estimate startup costs. Try and work out how much cash you'll need before anything comes in from customers and for the period when you'll have limited sales revenue. That might include space costs, purchasing equipment or supplies, salaries for early team members and so on. Build in extra for unexpected roadblocks.
5. Consider ways of supplementing your income. Though you might be in the lucky situation of putting up everything you need from savings, plenty of people start their bootstrapped business as side hustles. Assess whether you need to carry on your full or part-time role, get an evening job or take on freelance work. Another option might be boosting cash with personal debt. In both cases, a co-founder (or several) who can bring in their own investment is an obvious bonus.
6. Determine demand. In some cases, it might be possible to test the water by determining that demand for your product or service exists before spending. This might involve launching a campaign on a crowdfunding platform such as Kickstarter or Indiegogo, opening for pre-orders or conducting some specialized customer research. Some businesses can create a ‘beta’ version or minimum viable product and test this on a small sample of people.
7. Confirm bootstrapping is feasible for you – and your business. Decision time. Based on what you know, is it going to be possible to put enough time, money and effort into your small business if you bootstrap? And how long for? Consider your sector, time to market, emerging competitors, home and family situation, mental health and pre-existing knowledge and connections. If you're not convinced, look into other financing options.
• The main benefits of bootstrapping are that you're building sustainability into your business model from day one, growing at your own pace and maintaining total control of direction.
• The bootstrapping path is only advisable if it's suitable for your business model and sector – and your personal financial situation.
• Finding ways to bring in early revenue is essential to cover your business costs, pay yourself and invest back into the business.
Perspective. For the US Chamber of Commerce, George Deeb of consulting and advisory firm Red Rocket Ventures gives some clues on when it's best to bootstrap and when it's best to seek funding.
Example. News site TechCrunch lists 35 big companies that started with little to no money, extracting some key lessons for small businesses in the process.
Tool. Courtesy of entrepreneur Neil Patel, here are 25 tools to lighten the load for bootstrapped companies, covering everything from project management and SEO to design and team communication.
A version of this article was first published in the Courier Workshop newsletter. For more deep dives into essential business concepts, sign up here.