Startup Bootstrapping: How To Build Your Dream Business On A Tight Budget
6 tips to get the business you want.
March 28, 2018 at 6:53 pm
Roughly 543,000 new businesses start in the US each month. However, according to Fundable, less than 1% of these get funding from venture capital (VC) firms and angel investors.
The situation is even worse for startup owners belonging to minority groups. Only 4% of female-owned startups and 13% of minority-owned startups get a chance backing from VCs and angel investors. The rest get funding to start their business by taking out minority business loans or through bootstrapping.
What is startup bootstrapping?
Startup bootstrapping is the process of maximizing existing and self-generated funds and human resources to build and scale a startup. It comes from the popular phrase “to pull oneself by one’s own bootstrap,” referencing to grit and resourcefulness. In other words, bootstrapping involves making the most of what you have.
Benefits of bootstrapping your startup
Bootstrapping is not something new. In fact, it’s what 80% of entrepreneurs do to get their startups off the ground.
Some of them do so because they have no other choice. At the same time, many successful startups like MailChimp, Shopify, and Lynda choose to bootstrap their startups as long as possible.
Part of this is because it’s now much easier to start and build a business. Thanks to the internet, you can now have access to different tools and software platforms you’ll need to launch, promote, and scale your startup. Many of them are free. Others cost a mere fraction of what they use to be just a decade ago. So it’s not only cheaper to start a business today, but also faster.
Here are some of the other benefits that you get from bootstrapping your startup:
Start building brand awareness
Many startup founders offer their skills and expertise as freelancers during the early stages of building their startup.
Freelancing is on the rise. About 35% of people working in the US today are freelancers in different industries offering a wide variety of services.
Selling your services and skills not only helps you generate additional funds but also helps you start building up awareness about your brand. In today’s highly competitive marketplace, it’s crucial that you can get your startup’s brand noticed by the right people. That includes VCs and angel investors you want to pitch your startup to get funding to scale.
When you offer your expertise and services, you’re creating a platform where you can now establish yourself as an authority and expert in your niche. This will help you build an audience to whom you can offer your startup’s product or services once it launches.
Complete ownership of your startup
Most (if not all) VCs and angel investors will require a share of your startup’s equity in exchange for funding. Since many of them have built businesses of their own, having them onboard means tapping into your experience to make better decisions for your startup.
The downside to this arrangement is that they now have a say in how you operate and build your startup. How much influence they have on the decision-making process greatly depends on the equity they require.
On the other hand, bootstrapping your startup means that you have full control of your startup. Since the bank or your relatives won’t dictate to you how you run and build your startup, you can stir it to the direction you’d want your startup to go.
Makes your business more investor-worthy
Being able to present in your pitch factual revenues and a steady profit growth without any funding is a sure way to get the attention of VCs and angel investors. That’s because you’re giving them a more realistic projection of the ROI they’ll receive should they decide to finance your startup.
6 tips on how to bootstrap your startup
Now that you know why bootstrapping can be your ticket to realizing your dream of owning your own business, the question you may now have is: how do I do it?
Below are some startup bootstrapping tips to help you get started.
1. Validate your startup’s idea
Building a startup, with or without sufficient funding, is hard work. It will demand a lot of your time and resources. So before you actually go to work, make sure that you research if your startup idea is profitable.
One of the most critical things you need to determine your unique selling point. As I mentioned earlier, internet technology has now made it very easy for any entrepreneur to start a business. There’s always that possibility that another business is offering the exact same product or service you intend to launch. You need to have something so that your target customers can easily differentiate you from your competitors.
2. Align your startup with your skills
Since you’re building your startup on a shoestring budget, it’s very likely that you’ll be doing all the work in the beginning. Choosing to launch a product or service that you not only know how to do but do excellently, can help you speed up the product development process. It also means that you can do away with hiring extra help to create and promote it to your would-be customers.
3. Choose the right people
If you need help building your startup, consider getting someone on board as a co-founder. According to the Kauffman Foundation, having a co-founder to help you build and launch your startup increases your revenues by 30%. Your startup's user growth is 3x more than if you do it alone, and 19% fewer chances of expanding prematurely.
When choosing someone to come onboard as a co-founder, look for someone whose skills are complementary to yours. That means your weaknesses are your co-founder’s strengths and vice-versa. Not only can you delegate tasks properly, but also launch a high-quality product or service.
Commitment is another factor you need to consider when choosing a co-founder. Bootstrapping a startup is like marriage. There will be good days and bad days. There will be successes and failures. These are all part of starting a business. You and your co-founder need to be 100% committed and supportive of each other along the way.
More importantly, your co-founder should be someone that you can trust completely. You’ll, after all, be sharing the ins and outs of your business. You need to make sure that the person you choose will not turn around, steal your idea, and use this to launch a startup that will compete with yours.
4. Prioritize making a profit
Developing paying customers is the topmost priority when bootstrapping your startup. It's the only way for you to quickly generate your startup's revolving fund. You need to make sure that the business model you use is capable of doing this. Otherwise, your startup won’t survive.
One way how you can do this is by offering discounts on those that will pre-order your products before it launches. If you’re using a subscription business model, give your target customers discounted rates when they choose to get a quarterly, semi-annual or annual payment option.
5. Use ready-made themes for your startup’s website
One of the common mistakes startup founders make is striving to get a fancy, custom website designed right at the very beginning.
Having a custom website is great, but it can also be very expensive for a startup that’s bootstrapping. Far too often, bootstrapping startup founders that do this end up spending a considerable amount of their funds that they have barely anything left for marketing and promotion.
A cost-efficient alternative to this is to create your startup's website by purchasing a customizable child theme. It costs a fraction of the amount you'd otherwise spend on a custom website, and work just as good.
6. Track every single penny you spend
Recording and monitoring all your expenses may be one of the least thrilling parts of startup bootstrapping, but it’s perhaps one of the most crucial. That’s because if you’re not careful, you could end up with a huge amount of debt and hardly any income coming in to help you pay them off.
This was the important lesson Reham Fagiri, co-founder, and CEO of AptDeco, learned while building her startup. She states that even though her startup was hitting one milestone after another, her lack of focus on her startup’s accounting nearly jeopardized her business.
“I was amassing a huge bill, and it dropped like a hammer in one month,” she said.
Fortunately, she and her co-founders were able to bounce back. From then on, they kept a close watch on their expenses. As a result, they scaled their business.
Startup bootstrapping is tough. It involves lots of hard work and discipline but there are resources available to help you with your entrepreneurial journey as a startup founder, such as Apps Without Code.
Bootstrapping your startup is a critical stepping stone towards getting funded by VCs and angel investors. When you’re able to show them projections based on a minimum viable product and a proven business model, it makes them all the more keen to consider investing in you, empowering your further to scale and grow your startup.