What is Bootstrapping?
Bootstrapping is a term used in business to refer to the process of using only existing resources, such as personal savings, personal computing equipment, and garage space, to start and grow a company. This approach is in contrast to bringing on investors to provide capital, or taking on debt to fund a business’ expansion. It’s about stretching what you’ve got – whatever that is – to get the job done.
The term “bootstrapping” originated with a phrase in use in the 18th and 19th century: “to pull oneself up by one’s bootstraps.” Back then, it referred to an impossible task. Today it refers more to the challenge of making something out of nothing.
A bootstrapped company is one that has been started and expanded only through the entrepreneur’s personal resources and revenue generated by the company.
The advantages of bootstrapping a company are:
- The owner(s) maintains complete control of the company, without outside influences from investors, for example.
- Relying on existing resources, without loans, reduces the need to outlay cash to pay back a loan.
- Carefully managing money from the outset creates smart spending habits.
On the other hand, there are downsides to declining outside cash infusions:
- The business’ growth may be limited or hampered if demand exceeds the company’s ability to procure inventory or raw materials to sell.
- The entrepreneur assumes nearly all the financial risk by not sharing the burden with outside investors, who put up cash to support the company’s growth.
Different aspects of a company can be bootstrapped, or managed with an eye toward making the most of what a company has. On the financial side, that means keeping overhead low and avoiding paying too much for anything, or paying sooner than is necessary. Here are some possible bootstrapping techniques to use:
- Avoid renting work space until you absolutely need to, such as when you start hiring employees. Then, look into low-cost co-working space first, to keep lease payments low.
- Don’t splurge on expensive office furniture and equipment. Buy used or, if it makes sense, lease to conserve cash.
- Barter with other companies to get what you need, whether it’s products or services. Conserve cash.
- If suppliers offer a discount for early payment of their invoices, pay those first.
- Negotiate with suppliers to get more time to pay. Many offer 30 days with no interest, so see if you can get 45 or 60.
- Factoring is expensive, so don’t use it unless you need to, but if you get stuck, you can sell your receivables from customers to outside companies that will immediately pay you 75-90% of the face value of an invoice, with a service fee of around 2-5%.
“Bootstrapping” is more commonly used in reference to marketing tactics, where creativity can trump big cash outlays. Some effective, low-cost techniques include:
- Offer prospects and customers free samples of your products or services, such as a free 15-minute consultation, or a little shoe care kit.
- Set up a rewards program to incentivize customers to shop with you more often.
- Since baskets have been shown to encourage shoppers to spend more, offer customers shopping baskets to fill with their purchases.
- Schedule special events in your store, bringing in designers or celebrities or chefs – depending on your products – to give prospects and customers a reason to come in and shop.
- Build an email list of customers and prospects you can stay in touch with.
- Ask happy customers for testimonials to use in future marketing materials.
- Creating a blog using Wordpress, which is free, to share company news.
- Comment on others’ blogs.
- Set up social media accounts on platforms your customers use.
- Register for a free account on Helpareporter.com to spot publicity opportunities that won’t cost you anything.
- Go to industry trade shows as an attendee, not exhibitor, and network with prospects without paying for a pricey booth.
- Partner with complementary or neighboring businesses to co-promote to your lists.
If you’re building a business without borrowing lots of money or taking investor cash, you’re bootstrapping.