What is Bootstrapping?
Bootstrapping represents the situation in which a person wants to start and found their own company and for this, makes use of their own capital – generally it is usually little capital, or the capital generated by the same company, without the financing of third parties (Venture capital funds, investors, bank loans, among others).
The companies that can apply bootstrapping are those that are in the initial phase, so they generally do not yet use a significant capital investment, especially external and those in which their founders are serial entrepreneurs, that is, they constantly create, and They sell established companies to use the money as a fund for their next venture.
Victor Kwegyir says that “What sets bootstrapping apart from other forms of business funding is that it relies heavily on entrepreneurs’ frugal thinking, creativity, thriftiness, planning and cost-cutting efficiency skills.”
What is a bootstrapper?
The bootstrapper is the person who founded the company and is the sole investor during its early stages of development. Thus, the capital that he allocates to his company comes from personal funds, savings accounts, etc. However, once the company begins to make a profit, this money is reinvested in the company, cash flow being essential for the development and growth of your business.
How to be a Bootstrapper?
Understanding that to be a bootstrapper you must start a startup with its own capital, we present below, bootstrapping methods:
– Know the market: It is important to know the market (the demand, the competition, the public, etc.) where you want to start a business since just seeing the potential is not enough and you can incur failure.
– Work team: When creating a work team, it is important for everyone to be aware that success is the product of hard work, perseverance and even, at times, facing failure. Therefore, in the early stages of development, they should be clear that before waiting for money upfront, a lot of effort is needed to get the business going.
– Create a budget and business strategy: To start a business it is crucial to have a plan to follow to minimize improvisation and the risks that may involve greater expenses or losses in the future. In this way, decision-making will be purpose-oriented with clear objectives.
– The initial investment: generally, begins with personal savings and can even reach a capital treatment provided by family or friends, without going to third-party investors or banks. It is common for the bootstrapper to have other work in parallel to maintain financial security and to invest it in his business until it has a sufficient cash flow to support itself.
– The product or service: It is important that once the product or service that the company will offer is ready – prior analysis of the market, competition, public, etc., it goes out soon to the market to start attracting customers and making itself known. If this product is not in an advanced development phase, that is, it is not a completely ready product or service, it is important that it is at least in a minimum viable state to present to the public.
– Capital reinvestment: As mentioned above, when the business begins to produce, it is important to reinvest the capital obtained from customers to continue financing operations, to be self-sufficient and even reached that stage, to have the opportunity to expand. Thus, sales and business strategy are crucial to the operation of your company.
Examples of bootstrapping
Steve Jobs with Steve Wozniak, started in 1976 from Jobs ‘room in his parents’ house, a project that would soon revolutionize the world in the field of technology and communication. This project became Apple, which today is worth $ 2 trillion.
The American underwear manufacturer started because its founder Sarah Blakely in the search for a suitable underwear for an event, with a pair of scissors and pantyhose, created an underwear model that was comfortable for women in the same situation. Thus, she took $ 5000 from her savings and began developing prototypes from her apartment.
In 1935, two Stanford University graduates, William Redington Hewlett and David Packard, decided to create their own company in their garage with an initial investment of $ 538, developing computer inventions that led to the fact that today the company has a valuation. of $ 46,151 billion.
Other important examples of bootstrapping are Facebook Inc., Microsoft Corporation, Mailchimp, Ebay, among others.
As we can see, bootstrapping is a long and slow process since first the foundations must be laid to start the project, cover operating expenses, and then make the business self-sufficient. Therefore, it requires a lot of commitment, perseverance, and work on the part of those who undertake this path.
If you want to know more, check out our article: What is bootstrapping?