Have you heard the term “bootstrapping a business?” Derived from the old saying about “pull yourself up by your bootstraps,” bootstrapping means using your own money to finance and grow your startup. Instead of seeking a loan or investors to fund your business idea, you launch using your savings, then put all the profits back into the business to keep it going—and growing.
Today, when so many media stories about hot businesses focus on investors and venture capital rounds, the thought of bootstrapping a startup may seem as old-fashioned as the term’s origins. In reality, however, bootstrapping is often the best way for a new business to get off the ground.
Advantages of Bootstrapping
Bootstrapping is often a more realistic option for most small business owners and offers several advantages over seeking investors:
- You don’t have to wait for an investor or lender to approve your idea, your management team, your business plan and your financial projections before you start your business—you can just get going!
- You don’t have to answer to investors or lenders when making decisions about how to run and grow your business. Basically, you’re the boss, with no one looking over your shoulder.
- Astute investors or lenders will want to see that you’re putting your own money into the business before asking for theirs. Bootstrapping a startup can make it easier for you to get capital from outside sources later on, when your business is in rapid growth stage.
- Last—and most important—when you bootstrap your business you aren’t giving away any ownership in your concept to others. All the profits belong to you. Now, doesn’t that sound more appealing?
If you are launching a capital-intensive business with such high startup costs that you can’t possibly have that much money on hand, bootstrapping may not work for you—but in almost every other situation, you can make it work. Here are some objections you might have to bootstrapping, and how to get around them:
“I can’t afford to bootstrap my business because I need to take a salary right away. I can’t put the profits back into the company.”
New businesses typically take 12 to 18 months to make a profit, and you need to have enough capital to sustain yourself and your living expenses until that time. As a bootstrapper, you’ll need to get by even longer without a salary (or a very small one). Consider delaying your startup while you save up your capital, working part-time while you launch your business to provide some income or starting your business part-time while keeping your job.
“But how will I pay for all my business’ expenses, like renting an office and hiring employees?”
Don’t assume all these expenses are necessary. Think like a bootstrapper and come up with ways you can cut the costs of starting up. Could you run your business from home, use equipment you already own and hire independent contractors or virtual workers instead of full-time employees? Instead of opening a retail store right away, why not start with an e-commerce website to lower your initial investment—and risk?
How to Finance While Bootstrapping
Now that you’re hopefully at least more open to the potential of bootstrapping, here are some places you can look to find capital for your startup.
- Your savings and checking accounts.
- Retirement accounts. But before you do, carefully assess the risks of borrowing from your retirement account, and know that you do have to pay yourself back.
- Stocks or other investments. Now’s the time to cash in those old savings bonds and consider selling off some stocks if you have them.
- Collectibles or other products. Your old Star Wars figurines from 1977 or collection of designer handbags could be the source of your startup capital. List products on eBay or industry-specific resale sites and see what you can get for them.
- Adult toys. No, this isn’t what it sounds like. I’m talking about things like motorcycles, ATVs, boats and other “extras.”
Already tapped these sources out? If you still don’t have enough capital to start up, consider these more extreme measures:
- Sell your house and rent an apartment or a room in someone else’s house.
- Take in a roommate—or two—to cut living expenses.
- Move back in with your parents.
- Sell your car and take public transportation or ride a bike.
We’ve all heard glorious tales of startup founders who slept on the floors in their offices and ate nothing but ramen noodles for a year while launching their companies. Do you have that kind of enthusiasm? If so, bootstrapping could be right for you.
If you are trying to avoid debt or equity financing for your business, read our article on the five reasons why you should bootstrap your business.