Entrepreneurs think that in order to have a successful company they have to seek VC funding.
The problem with VC is you give away equity in your company and are committed to growth.
What if there was another way to successfully grow your company yet maintain full control?
Bootstrapping is the process of funding and scaling your business through your customers.
By aligning yourself with your customers, you will be able to deliver better value to them.
As you gain more customers, you build your team, further develop your product, and scale.
Bootstrapping is not about hyper-growth but building a sustainable business with cashflow.
In this post, I talk about VC vs bootstrapping and what are the strategies/tactics to consider.
I also mention successfully bootstrapped companies as well as alternative financing options.
Finally I discuss how to build a good business and where to go to find out more information.
Venture Capital vs Bootstrapping
The fact of the matter is: some businesses require VC funding and some can be bootstrapped.
It all comes down to the size of the market, the nature of the business and your growth goals.
- For example VC is best when the size of the market is huge: finance, environment, health etc.
- It is best if your product needs a lot of investment: manufacturing, machinery, property, etc.
- It is best if your growth is linked to heavy advertising or the need to acquire many customers.
- Alternatively, bootstrapping is best when your market is niche and there is little competition.
- It is also better if you can sustain yourself (and your team) until there is cashflow and profit.
- It is also best if you have financial discipline and are able to commit to reinvest early profits.
Don’t let anyone tell you that you need VC funding in order to successfully grow your business.
If you can bootstrap, great; if not, that’s also fine. At least you know which can work for you.
Bootstrapping Strategies and Tactics
Assuming you are keen to bootstrap, what are some of the strategies/tactics to implement?
Before you implement, you must be mentally prepared: focus on journey before destination.
- In terms of strategies, focus on unattractive markets for VCs: you will have little competition.
- Be obsessed with your customers: be generous with them – but not by lowering your prices.
- Write an honest business plan: you’re not focused in hypergrowth, but in sustainable growth.
- As for tactics, keep it simple: stick to one main thing and do it really well before you more on.
- As well as that, make sure you are discoverable: put yourself out there and build credibility.
- Also invest in assets and operational excellence: building solid foundations will pay long term.
On top of all these strategies and tactics, take your time: quality and care go hand in hand.
If you are patient enough, you can also raise funding: but this time they will be coming to you!
Alternative Financing Options
I didn’t realise there were so many alternative funding options to bootstrap your businesses.
I’m not talking about grants and competitions, but some options you may not have heard of:
- Factoring: this is where you sell unpaid invoices to accelerate cashflow (this was new to me).
- Crowd Funding: where you raise money from people interested in the product i.e. Kickstarter.
- Lifetime Deals: this is a strategy used to attract/retain customers for products e.g. Appsumo.
- Revenue Based: where you offer a percentage of your revenue for upfront capital e.g. Pipe.
- Venture Debt: is used to cover expenses, acquisitions, and extending runways e.g. Mercury.
- Bootstrap Funds: investors that understand and encourage sustainable growth e.g. TinySeed.
As you can see, there are many alternative financing options for your bootstrapped business.
Not all of these are options at the start, but it’s nice to know what is available down the line.
Successful Bootstrapped Companies
This is all sounds great, but are there any examples of successful bootstrapped businesses?
It turns out there are plenty of successful businesses that I didn’t realise were bootstrapped:
You may have heard of Mailchimp: the marketing automation and email marketing platform.
Back in 2001, Ben Chestnut and Dan Kurzius wanted a better way to design email newsletters.
20 years later this bootstrapped business is now estimated at a value of more than $10 billion.
You may have also heard the company Lynda: founded by teacher Lynda Weinman in the 90s.
Unimpressed with what was available in stores, she started created her own online tutorials.
In 2015, she ended up selling her lifework to LinkedIn Learning for an estimated $1.5 billion.
These are just two of many successful bootstrap examples: Shopify, Sparkfun, Ipsy, etc.
Some of these companies accepted venture capital funding later on, but on their own terms.
Build a Good Business
Entrepreneurs think a successful business is about high valuation, nice office, and big teams.
However, as we’ve seen with WeWork, this hypergrowth model can all come crashing down.
What’s better is having a business that generates reoccurring income and has high retention.
Instead have a smaller team, big revenue per employee, and generate massive shared profits.
What’s even better than that is bootstrapping your business to a couple of million in revenue.
A part from the fact you have sustainable revenue, you keep full control over your business.
To find out more, check out the book: The Minimalist Entrepreneur by founder Sahil Lavingia.
It is a manifesto for new founders who would rather build great companies than just big ones.
Are you bootstrapping your business? How is it going? Share your thoughts in the comments.
If you want to find out more on bootstrapping, please let me know in the comments below!
