Startup 2021: Pros and Cons of Bootstrapping

By Danielle Fallon, Contributor

In our Startup2021 series, we're helping aspiring entrepreneurs navigate the new business climate of the COVID-19 era. Each week, we'll share an in-depth look at one step you can take toward launching your business in 2021.

Securing funding is often one of the biggest obstacles for new business owners. To solve this problem, some entrepreneurs opt to selffund their business venture, a practice known as bootstrapping.

While funding your own company can be challenging, many now-successful startups have gone down this path. Here's everything you should know about this fi nancing method, including the pros and cons of bootstrapping.

What is bootstrapping?

Bootstrapping refers to the process of starting a company with only personal savings, including borrowed or invested funds from family or friends, as well as income from initial sales. Self-funded businesses do not rely on traditio`nal fi nancing methods, such as the support of investors, crowdfunding or bank loans. Rather, as the name suggests, entrepreneurs must “pull themselves up by their bootstraps'' by using their own capital to launch.

Pros and cons of bootstrapping

After reading about bootstrapping, you may be wondering whether it’s the best route for your startup. To help in the decision-making process, here are some pros and cons of bootstrapping:

Pros of bootstrapping

 It allows entrepreneurs to retain full ownership of their business. When investors support a business, they do so in exchange for a percentage of ownership.

Bootstrapping enables startup owners to retain their share of the equity.  It forces business owners to create a model that really works. Most failed businesses struggle due to a poor business model.

However, bootstrapping entrepreneurs are forced to develop processes that produce immediate, lasting cash fl ow, bypassing this outcome.  It provides a sense of accomplishment. For some entrepreneurs, building something from the ground up without outside help is its own reward.  It keeps control over direction in the owner’s hands. Taking on outside money also means taking on external pressure and responsibilities to satisfy those investors’ interests. While solutions to this exist within a traditional fi nancing model, bootstrapping allows business owners to maintain full artistic direction and control over decisions.

Cons of bootstrapping

 It can be risky. Self-funded businesses can run out of funds more quickly and struggle to scale as their needs are met. This can limit a startup’s ability to reach its full potential.  It limits support and opportunity. Traditional fi nancing methods don’t just off er higher amounts of capital; they also unlock networking opportunities with top-level help, such as board members, shareholders and infl uencers. Bootstrapping a business limits that support and opportunity.  It requires signifi cant organization.

Entrepreneurs who self-fi nance must be extremely meticulous about keeping their books in order, lest issues (or opportunities!) arise later on.  It is hard work. With potentially limited resources and connections in the beginning, bootstrapping entrepreneurs have to work harder and take on more roles. For some, this additional work can be well worth the eff ort.

Examples of successfully bootstrapped businesses

Many thriving startups have bootstrapped their way to success, including:  BiggerPockets. BiggerPockets, the largest online community for real estate investing, was launched without any venture capital money. Today, it boasts over one million members and a successful business podcast.  Mailchimp. Now driving nearly $700 million in annual revenue, this email marketing platform started from a self-funded dream and is still 100% founder-owned.  MyClean. The founders of MyClean, a New

York-based on-demand cleaning service, convinced friends and family to loan them $267,000. With more than $9 million in annual revenue and an expansion into Chicago and

Washington, D.C., the gamble certainly paid off .  SparkFun Electronics. The online retailer for hard-to-find circuit boards and gadgets has grown rapidly over the years, with annual revenue over $30 million.  Tough Mudder. Tough Mudder’s founders each put about $10,000 into their extreme obstacle course company. With over two million racers since its founding, Tough

Mudder is now one of the giants of the obstacle racing industry.

As long as entrepreneurs are aware of the associated risks, bootstrapping can be an incredibly eff ective fi nancing method for startups looking to get a foothold in the market. www.uschamber.com/co/start/startup/ bootstrap-funding-pros-and-cons?utm_ medium=40digest.7days3.20210607. carousel&utm_source=email&utm_ content=&utm_campaign=campaign Image credit: press.farm

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Should I Bootstrap or Look for Investors? 5 Ways to Raise Money for Your Business Fast 4 Experts Share Their Business Funding Strategies www.instagram.com/thrivewithco/