Why do you need to develop a bootstrapping strategy for business success? And what the hell is bootstrapping anyway? Bootstrapping is the start-up of a business, which is realized exclusively with its own money. Not everyone is advised to pursue a bootstrapping strategy — it is important, as so often, to weigh up opportunities & risks.
What does bootstrapping mean?
The term bootstrapping refers to a kind of self-help, and comes from the term “pulling yourself by your own bootstraps.” It is a matter of mastering a challenge without outside help. Partly because help is not available, partly because you deliberately want to forgo support – you want to do it on your own.
Bootstrapping for founders: only your own money
The term bootstrapping has long since established itself in the start-up scene. Bootstrapping describes a form of financing for the start-up of a business, in which foreign capital is deliberately dispensed with. The goal is to start and build your own company on your own. This also means that only own money is invested in bootstrapping.
Requirements for a bootstrapping strategy
As fascinating as the bootstrapping sounds, bootstrapping is not suitable for every type of business and also not for everyone. The following prerequisites should be met for a successful bootstrapping strategy:
- Own money
- Focus on positive cash flows
- Risk
- Efficiency
- Clear focus on sales
- Courage to leap
Own money: When you develop a bootstrapping strategy, you start with your own money. You have to keep in mind that, especially in the initial phase, you have to bear your private costs (rent, insurance, food & drink, etc.) in addition to the foundation. A well-designed and conservatively calculated Budget is therefore crucial when it comes to bootstrapping.
Focus on positive cash flows: The basic rule to think about when you develop a bootstrapping strategy is: generate a positive cash flow as soon as possible, i.e. raise more money as soon as possible than spend! It is therefore important that you keep a close eye on costs and, in particular, work towards a steep sales development. Business models that have a long development phase are therefore not suitable for bootstrapping.
Risk-taking: In a boat-trapping start-up, you carry the full risk (and do not share this with e.g. other investors). The risk-taking of bootstrapping founders must be comparatively high. The question of risk capacity is also exciting. Because: not every founder who is willing to take risks should also accept risks in full. For example, it may make sense for a family man with a home (and mortgage) to reduce or diversify the start-up risk by getting more investors on board.
Efficiency: Many founding experts who write about bootstrapping believe that thrift is a virtue in bootstrapping. However, we are more in the opinion that a bootstrapping strategy should focus on efficiency in particular. It is a question of increasing sales as quickly as possible, but without making unnecessary expenditures. But it doesn’t help you if you do everything yourself just to save money.
Because if you focus in particular on your core competencies and have specialists for certain things (e.g. having a homepage created cost-effectively instead of laboriously tinkering with a semi-professional homepage yourself), you usually come progress much faster, as you use your working time more productively.
Clear focus on sales: For a successful bootstrapping strategy, certain “salesman genes” are absolutely necessary. Earn the first Euro as soon as possible – that’s the motto of bootstrapping! If you are not a seller type, you should consider expanding your founding team.
Courage to gap: A tight budget often means courage to fill the gap. They will not be able to achieve a perfect solution in all areas. However, this is usually not necessary, as 80% is usually enough to be successful.
Benefits of Bootstrapping
There are several points that speak for a bootstrapping strategy. For example, companies that were set up by means of a bootstrapping financing strategy are usually more lean and efficient than companies that provided sufficient capital when they were founded.
Another factor that is certainly important for founders in bootstrapping is that you can keep the company 100% in your own hands and thus also benefit 100% from success, but also from failure.
The reputational gain resulting from a successful bootstrapping is certainly also to be emphasized positively. Those who have made it on their own show that you can be successful even with small budgets. This impresses customers and business partners, but especially potential investors, who can be recruited relatively easily, for example, for expansion financing.
Disadvantages of Bootstrapping
To develop a bootstrapping strategy is certainly the most risky financing strategy. In addition, the road to becoming a successful company is usually more rocky and it takes comparatively longer for large sales figures to be achieved.
The fact that there are no other shareholders on board during boostrapping may be an advantage, but it does not have to be. Because: If things don’t go as planned, then an experienced investor can help with advice and deeds and, if necessary, help to rip the rudder around again.
Conclusion: Bootstrapping is not suitable for everyone
In conclusion, to develop a bootstrapping strategy is suitable for founders with an increased risk appetite who can reach break even with your business model within a short period of time.
For founders who do not want to or cannot take the full risk, or for start-ups that plan a long development period, a bootstrapping strategy is not necessarily recommended.
