The Startup Playbook by Rajat Bhargava & Will Herman

Author:Rajat Bhargava & Will Herman
Language: eng
Format: epub
ISBN: 9781119708537
Publisher: Wiley
Published: 2020-05-27T00:00:00+00:00

Bootstrapping

Pros: There's no dilution, and you maintain full control over the business.

Cons: It's difficult to grow fast, and you don't get experienced support tied to the business.

Some companies initially opt to forego raising money from outside investors or to take on debt. Instead, these companies prefer to bootstrap—generating the fuel they need from the sales of their products to customers. We see this approach with small companies just starting out, where two or three people are in a garage or basement with the early concepts of an idea. The idea hasn't been fleshed out, and they can't demonstrate a broad value proposition to garner attention from outside investors just yet.

They opt to sell their product to show traction and generate cash to keep them afloat. Often, this is because they can offer their product as a service or heavily customize it on a consulting basis. If your offering is a service, you might be able to sell a subset of your final offering or a customized version that meets the needs of a smaller set of customers. This is, of course, not scalable, but it can provide some initial cash for the business.

There are other reasons why you may choose to bootstrap. Perhaps you don't feel your company is a venture-funded business, which means you don't believe you can return many multiples of the money you take from investors. Or, maybe you have been fortunate to find customers during the vetting of your idea, and you don't need external money right away. Or, perhaps you have enough cash personally to cover your early expenses.

Whatever the reason, bootstrapping your business can be a viable way to grow your startup. If you can get money from customers without giving up a portion of your company or incurring debt, then that's great. But, just remember, even if you bootstrap the business, you are still raising money, just through different means.

Bootstrapping isn't without its limits. Rarely does it result in generating the fuel that founders need to build and sell their first product. If you need a huge influx of cash and quickly, then it's unlikely that bootstrapping will help you. If you decide to bootstrap, just be prepared that you'll risk letting competitors into your space because of potentially slow, underfunded growth.

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