Bootstrapping in business: Strategies for success

What is bootstrapping, and should you care?

Bootstrapping is when business owners largely fund their businesses themselves without the help of external funding sources. And it’s more common than you think, with 78% of small business owners using their own funds to launch their businesses and organisations like Amazon, GoPro, and Tough Mudder starting life like this.

Starting a business can be expensive. It costs just over £12,500 to create the average business. But that doesn’t always equate to external funding for many companies. For starters, it can take a long time to get investment, and it may be that the company is not ready for funding – despite that, it still needs to grow.

So, if you haven’t got investors lining up at your door or don’t want to take on a heap of debt at this early stage, business *bootstrapping could be worth a shot.

Three advantages of bootstrapping in business

Bootstrapping is hard. But there are some advantages, including:

1. You maintain full control

You only rely on yourself as you don’t have to give an investor equity in your company, which means you make 100% of the decisions. (This is a downside, too, as in reality, most businesses benefit from mining the insights of experienced investors).

2. Lower expenses mean higher profit margins

As you’re financing the venture, you don’t need to budget for monthly loan repayments plus interest.

3. You find new ways to be creative

Having a limited budget means looking for creative ways to save money, market your business, and get your company in front of new audiences.

Five disadvantages of bootstrapping in business

As with anything business finance-related, there are some downsides to consider with bootstrapping.

1. Business growth will be slower

If you rely on personal funds and limited external investment, you won't be able to scale your business. If it's rapid growth you're looking for, then bootstrapping might not be for you.

2. Finances aren't as secure

With limited financial resources, you can face cash flow struggles due to unexpected expenses. Whether it's due to broken equipment or a supplier management delay, having secure cash reserves available will give you peace of mind should this happen. But with personal funds - that's not always an option.

3. You can become too cost-conscious

Although you're controlling how much you spend in granular detail, it's important not to skimp on the elements that will make your business thrive in the long term. For example, you might want to invest in innovative business expense management software to have the most efficient processes as you scale.

4. Personal financial pressures

If you're shouldering all the financial investment, i.e., personal savings or reinvesting profits, it can put immense pressure on you. You can easily find yourself in a cycle of debt, which can impact your personal credit rating and put your collateral assets (such as your home) at risk.

5. It can be difficult to compete

Going it alone without investment can mean you're not taken seriously as a competitor in the marketplace, which can deter suppliers from working with you. And because you have limited resources, you cannot compete with your larger competitors' marketing budgets or branding capabilities.

Helpful bootstrapping advice from successful business owners

Sometimes, you just need a little inspiration. So, we've dug into the stories of business owners who bootstrapped their business ventures and learned valuable lessons in the process.

GreenPal has grown from one city to servicing over 250

GreenPal is a mobile app and online platform connecting homeowners with local lawn care professionals. They started their business in 2012 with no outside capital, and after making many mistakes, the company is now thriving.

GreenPal Co-Founder Gene Caballero had this advice for anyone considering bootstrapping:

> "One of the most crucial pieces of advice I can offer is to embrace lean and agile approaches. Start by building a minimum viable product that addresses a specific problem for your target market."

"By doing so, you can validate your business concept with minimal investment. Avoid the mistake we made by investing a significant amount upfront without proper testing and validation," continued Gene. "Instead, iterate and improve based on user feedback and market demand to ensure you deliver a solution that truly meets your customers' needs."

Nova Custom Printing bootstrapped 28 years ago and is still going strong

Nova Custom Printing provides nationwide branding and marketing solutions to startups and major corporations.

According to Michael Nova, Director of Nova Custom Printing, bootstrapping can mean considered business growth when done right:

> "Bootstrapping a company forces you to build the company slowly and not get ahead of yourself with overspending, overhiring, and growing too quickly."

"I've seen companies that started around the time I did grow exponentially and then eventually go out of business because they just couldn't maintain their level of customer service as they grew," explained Michael. "Rather than doing that, concentrate on each client or customer and make sure they are 100% satisfied before moving on to the next one."

An inspiring bootstrap case study: Plenty of Fish

In 2003, Markus Frind founded the dating site Plenty of Fish. From humble beginnings in a small Canadian apartment, the dating site is now a household name and has since been sold to Match Group for a cool $575 million.

But in the early days, Markus kept operating costs low, painstakingly building the website himself. Being cost-conscious meant Markus could offer the dating service for free — immediately outshining competitors offering a paid dating subscription service.

Although the company faced challenges, including server crashes and security issues, this is truly a tale of rags to riches and shows determination and hard work when bootstrapping in business can occasionally pay big dividends.

Real tips on how to bootstrap your business

Further to the success stories above, many bootstrapped businesses said they used methods like personal credit cards and family loans to get off the ground but acknowledged that these all come with substantial risk.

Beyond sourcing funds, bootstrapping businesses need to stretch their cash as much as possible and should therefore minimise overheads wherever possible.

Businesses should consider saving money in the following ways:

● Don’t rent an office space — consider working from home or sharing a space to cut expenses
● Don’t entertain expensive marketing campaigns — trial organic marketing strategies like social media, guerrilla, or content marketing
● If you can afford to, don’t take a salary at all while your business is growing
● Negotiate the best supplier rates and keep track of your expenses

Alternative financing options to bootstrapping

Looking for rapid business growth? Or moving on from an initial bootstrapping phase?

Here are just a handful of ways you can finance your business:

Equity finance

A great way to grow your business quickly is to get an investor on board and utilise their expertise, industry contacts, and funds to grow quickly. Angel investors or venture capitalist firms will want equity ownership in return for funds, so there may be better solutions than relinquishing control of your business.

Business loans

Business loans, particularly unsecured loans, are among the most popular ways to access fast finance. You can access more cash with secured loans, but they require commercial property, equipment, landing, or vehicles as collateral, so they are deemed riskier for the borrower.

Revolving credit facilities

Revolving credit is perfect for small businesses that want to draw down cash when needed. You only pay interest on the borrowed money, so it’s nice to have it there, just in case. Types of revolving credit include business credit cards and lines of credit.

Government or business grants

Although grants are competitive with strict criteria, they can offer you access to free business resources and funds you don’t have to pay back. Some schemes will expect you to match the money they give you, so bear this in mind.

How Payhawk’s expense management software can help you take control of business spend

Whether bootstrapping, seeking investment, demonstrating good cash flow control to investors, or growing your business, managing expenses accurately is essential.

Technology can help you control spend management effectively, so your costs are always visible, trackable, and easy to mine for insights. Without this level of financial visibility, you can’t launch, run and grow your business. You won’t know how much you can spend on marketing, you won’t know how many months’ cash is left, and you can’t create accurate business forecasts.

So how can our corporate cards and expense management software help you?

● You can automate expense tracking, which saves time, meaning you can spend your time elsewhere, adding value to your business
● Easily track and analyse your business expenses, ensure seamless subscription management, removing dormant subscriptions automatically, and ensure reporting and expense tracking is streamlined
● Empower your employees with corporate visa cards, but cap spending with custom spend limits so spending doesn’t get out of hand
● Control spend across multiple entities with FX rates far below those of the banks
● Get a completely seamless accounting experience with OCR spend data capture and accounting software integrations that supports real-time reconciliation, VAT reclaims, planning, and more

Final thoughts

Of course, if you launch your business with bootstrapping, nothing will stop you from accessing finance in the future once you’ve grown it a little more. But you must ensure you have the right tools to help you manage your corporate costs from the start and throughout as you scale a company.

Our solution equips you with the spend management tools necessary to bootstrap your business or seek funding with clear cash flow controls and visibility. You can carefully check spend, see what bills are due, and view current available funds all in one place.

See how our expense management software can help you bootstrap your business, book a demo.

• Legal disclaimer: The information provided in this article does not, and is not intended to, constitute legal, financial and/or tax advice. Instead, all information and content available herein is for general informational purposes only. The information presented herein may not reflect the most current legal developments. Readers of this paper should consult with a qualified expert to obtain advice with respect to any particular legal, financial and/or tax matter. No reader of this paper should act or refrain from acting on the basis of information contained herein without first seeking legal, financial and/or tax advice from an appropriate counsel in the relevant jurisdiction. Payhawk disclaims all liability in respect to actions taken or not taken based on any or all of the contents of this paper to the fullest extent permitted by law.