For some, bootstrapping is a choice. For others, a necessity. But no matter the reason, and despite the hardships bootstrap entrepreneurs face, there are some benefits of launching on the cheap:
- Speed. Raising capital can take 3 to 6 months or even longer, and it’s pretty much a full-time job. Good BootStrappers spend those months generating revenue instead.
- Flexibility. Great entrepreneurs have the ability to roll with the punches – to learn as they proceed, and modify their approaches as necessary. Once you’ve raised money by convincing investors “Plan A” will work, it can be difficult and time consuming to get those investors to embrace “Plan B”. Typically, BootStrapped businesses can change direction more quickly.
- Efficiency. If you don’t have it, you can’t spend it. During the dot-com bubble in the late 1990’s, money-losing startups wasted millions on Superbowl ads, game rooms, and in-house chefs. BootStrappers tend to use their money in a more disciplined manner, tracking expenses carefully, and spending only on the most efficient tactics.
- Capital preservation. As a rule of thumb, when you raise a lot of money for an early stage company, you give up a lot of ownership, or “equity”. In some cases, especially when factoring in risk, a founder can make more money owning 100% of a small but profitable, BootStrapped business, than owning 10% of a company backed with millions in venture capital. Also, note that you can BootStrap part of the way toward your goals, and then raise capital. That way, you’ll have more progress under your belt, and can raise money at a higher valuation – giving up less equity per dollar invested. That’s also known as gaining “traction.”