The Benefits of Bootstrapping Your Small Business or Startup


If you follow me at all you know that I am
a huge proponent of bootstrapping your business if at all possible. While raising outside
investment from a venture capitalist or an angel may be the glitziest way to go, it’s
not right for the vast majority of businesses. If you need a large sum of money in order
to achieve the rapid growth that you know your company is capable of and can return
huge returns for an investor then yes, by all means get your strategy together for raising
VC money. However, for most of you entrepreneurs out there, you’ll just be spinning your wheels
because the business you’re building is not suited for that type of investment. Somehow over the years raising venture capital
has become a success in and of itself as opposed to another step on the journey to success,
which means everyone wants to raise it, whether or not they should. Therefore, just to make
sure that any of you who won’t be raising VC cash don’t get distracted by the glitz
of VC land, here are some of the benefits of bootstrapping that entrepreneurs should
take full advantage of if they have the option. Firstly, bootstrapping is the only real way
– with the exception of rewards crowdfunding – to maintain complete ownership and control
of your business without taking on debt. If you want to be able to steer the ship based
on your goals alone without being bogged down by principal and interest payments that may
come due before you’re generating revenue, you have to maintain complete control. When
you bring on VC investors, they take equity in your company and seats on your board and
you are no longer the only leader at the table. You will be forced to take into account how
your investors want things done and, depending on the deal structure, may legally need their
permission for decisions about how to manage and where to take your company. Similarly, if you want to build a long-term
business, perhaps one that you can pass down to future generations in your family, you
don’t want to look at divvying up ownership and control to outside investors because they
will expect a quick profitable exit – a completely different goal. Bootstrapping gives you the
option to remain in control or try to make a profitable exit and the only person who
you need to get onboard with your decision is you. Next, when you bootstrap you learn to be thrifty,
creative, and efficient. Every single penny counts so you’re not wasting time on stuff
that doesn’t matter or you’ll go out of business. Raising too much outside funding can actually
have the effect of making a company inefficient – not just in the sense that they spend a
large chunk of their time courting investors and then trying to keep them happy, but because
the founders now have more funds to play with and less skin in the game. While most don’t
intend to slack off just because they’ve raised a round, having a long runway and a buffer
to fix mistakes takes away a certain level of urgency and typically leads to a less efficient
utilization of the capital available. Finally, if and when you do succeed, knowing
you literally built the entire thing yourself and that you don’t have to split the bragging
rights or the cash out with anyone will be an incredibly sweet feeling. If you jump into
too many rounds of venture funding, you’d be surprised at how quickly you can dilute
your power, control, and payout once you finally do sell or IPO. I’ve heard many stories of
entrepreneurs who sold their companies for 7 or 8 figures but only walked away with a
few hundred thousand dollars after years of hard work.
Once again, there are certain circumstances when raising venture capital is the best decision
for your business, but for the vast majority of companies, bootstrapping is a more beneficial
option and you should be careful to weigh the pros and cons of each before focusing
your energy on raising money instead of building your business. Now I’d like to hear from you. What are the
best reasons you can think of for bootstrapping instead of raising outside capital? Let me
know in the comments section below and if you’re not already watching at catecosta.com,
make sure to get over to the site to join the conversation and sign up for my free newsletter. If you liked this video or think someone you
know would find it useful, please spread the love my liking it and sharing it and I will
see you next week on New Venture Mentor.

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3 thoughts on “The Benefits of Bootstrapping Your Small Business or Startup

  1. don't take this as a hate comment but what is your products other than giving advice. Opinions are like noses everyone has one. But maybe I'm missing your successful bushiness you have up going and blowing as an example, and that I should pay more to your opinions.So far you make me think your the "Ann Lander Says" of the world wide web business world >>> but hey everyone got to start some place. Right. GL :o).

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