There are several different ways a startup founder might fund his or her business, including series funding, crowdfunding, loans, venture capital and angel investments. Bootstrapping is another option. As an entrepreneur, investment advisor and consultant to startup founders, I understand that each startup is different. There is no one “best” way to fund your business. However, one of the most powerful resources available to entrepreneurs is learning from each other, so I’m going to share why I bootstrapped my business, and why it might work for you, too!
StartupNation has partnered with Yottled to provide the fastest way to bring your business online. Get started for free
What is bootstrapping?
According to Investopedia, “Bootstrapping is building a company from the ground up with nothing but personal savings, and with luck, the cash coming in from the first sales.” The name comes from the old adage of “pulling yourself up by your bootstraps” — an unfortunate origin for a method that still requires plenty of help from others.
But that’s the quick and dirty definition; the reality is much riskier and much more rewarding.
When funding a company in this manner, the founder or founding team must be ready to take on all of the risk — and starting a company is extremely risky, no matter how you do it. It’s a trade-off: By bootstrapping, you keep the equity, but you don’t have anyone to share the financial burden with. It’s a tough choice to make, considering about 90% of startups fail.
Why I bootstrapped my startup
When it came time to finance my B2B SaaS marketing agency, bootstrapping didn’t really feel like a choice. Most service companies like marketing agencies don’t raise funds from investors. Even if I had thought about raising, at the time, I had no idea how to do it.
Midwesterners are known for being financially conservative, and I’m really no different. I did consider taking out a loan as a funding alternative but kept that and a line of credit as a last resort instead of starting with those options.
Fortunately, I did already have some entrepreneurial experience. Accelity is my second company; I started and ran a small food business for two years prior to launching. We didn’t make much, but I did have a few thousand dollars as a safety net from that first venture. I decided to launch using only the cash I had on hand and build from there.
It was terribly difficult, especially in the early days. But by not using any alternate sources of funding, I ultimately had more input on the direction my company was heading.
How we scaled via bootstrapping
While bootstrapping isn’t always an option for everyone, I developed a strategy that allowed me to scale my business in a way that fit our resources at the time.
I started selling before there was anything to sell
The absolute key to success in bootstrapping is selling, and I realized this early on. Yes, all startups need to sell to survive, but there’s a different kind of motivation when you’re using your own savings.
I was by no means a salesperson when I started the company, but I had to learn, and fast. I signed up for two intensive sales training courses hosted by HubSpot, and put my learnings into practice immediately. It wasn’t always rainbows and unicorns — there were periods when I would sell nothing at all, but I kept going knowing that sales were the only cure.
I invested in the foundation of the company right off the bat
Full transparency: Our margins were garbage for six years. Part of the reason is that I invested in the company by investing in people rather than building reserves. When we were only a year young, I hired a full-time team member to run Accelity’s marketing and to create scalable processes.
Because of that early decision, we now have better systems than most companies 10 times our size. Eight years later, we are growing quickly and set up to scale.
I paid myself very little for the first five years
No one starts a business to be broke, but that’s kind of what you’re choosing if you bootstrap. It’s simple math: When you’re reinvesting most of your profit, you don’t have money to pay yourself. I didn’t quite realize what I was signing up for (and it was rough for a few years), but in hindsight, I’m glad I did it.
What I would do differently the second time around
If I could do it all over again, I would have spent a year building a solid professional network via local networking and LinkedIn. LinkedIn has been a tremendous source of new business for us, especially as I’ve shifted my focus to creating LinkedIn video content in the past few years.
Now that I have a really strong professional network, I think I could cut the time it took to build my company to where it is today in half, at least. Think of your business as a plane. If you build the plane first, you don’t have to try to put it together while you’re flying it. The latter is what I did the first time and I’d prefer to not do that again, given the chance!
Is bootstrapping right for you?
Bootstrapping isn’t right for (or even available to) all startups.
Based on my experience, bootstrapping is a viable option for startups that meet the following criteria:
- You’re ready to make a commitment. Bootstrappers must be in it for the long haul. This type of funding is not a fit if you’re looking to sell your company and make a quick exit.
- You’re OK with taking it slow. Bootstrapping is naturally a slower growth path, as you must first earn revenue in order to reinvest. When everything rides on you, you need to learn how to manage stress and be comfortable with incremental growth.
- You know how to sell (or are willing to learn). In my experience, bootstrapping is easiest when you know how to sell. Selling is crucial because it’s the only thing that will fund your company outside of your own cash reserves.
- You’re eager to develop new skills. Without initial funding to hire a team, it’s up to you to grow the business until you’re able to add experts. Be prepared to learn how to do many different jobs.
- You can prioritize profits. For investor-backed startups, the top goal is often quick growth so investors can exit. With bootstrapping, you need to maximize profits to reinvest in the company, which may require taking a lower salary or doing everything yourself.
- You have at least some capital on hand. This one seems obvious, but you can’t launch a business with no capital. If you’re willing to grow your business carefully over time, you can start with a small investment and work toward your goal.
Bootstrapping was the right choice for my startup, and I’m grateful for what I learned along the way. By starting with solid savings and continually reinvesting in my company, I was able to grow it into a full B2B SaaS marketing agency generating over $1,000,000 in annual revenue. By following the tips I’ve outlined above, you can scale your business, too.