Business Law

Business Law

What is Bootstrapping?

January 30, 2017

What is bootstrapping? And should you do it? Bootstrapping is a term used by entrepreneurs that means they are starting and running their business with little money (called “capital” to those in the biz). Sometimes the bootstrapper means they are trying to use only personal funds and no outside funds. Other times, the business owner means that they are attempting to use no personal funds at all after their initial startup and using only profits from the business itself to grow.

Most bootstrappers wear the term like a badge of honor. And in many cases, for good reason. There is a LOT to be said for accepting no outside investments or loans. The entrepreneur keeps complete control of the business and if the business hits a rough spot, there are no loan payments to continue making. From that perspective, if you can bootstrap your business, you should absolutely do it.

However, some businesses simply are not good candidates for bootstrapping. The more capital intensive the business, the more likely you are to need outside funds. Bootstrapping also usually means slower growth. That’s not necessarily a bad thing, but depending on your industry, speed to market may be really important. For example, a software startup may have a great idea that’s going to take $50,000 to develop. If you bootstrap, it may take you a year or longer to get that saved up. Alternatively, you could bring in outside funds from a bank or investor and bring your product to the market immediately. In the tech world, an extra year is an eternity, so bootstrapping may not be a good idea here.

A word of caution: bootstrapping is NOT the same thing as being cheap. All too often, when someone says they bootstrap their business, they are actually just a cheapo. It’s smart to be frugal, to watch expenses, and to make sure your business is “living within its means.” But cheaping out is absolutely not smart. Spend money on the important things. Then, if the idea of bootstrapping appeals to you- do it!