Should You Bootstrap or Look for Funding?
Bootstrapping lets you focus on growing the business and less on investor relations
The Indian start-up landscape has seen tremendous growth in the past few years. Along with 3,100 start-ups, and staggering 800 more every year, our country has been positioned as 4th largest start-up community after the US and China. And this very fact has motivated young and creative people to come up with extraordinary ideas and set forth in the journey of entrepreneurship.
Interestingly enough though, the biggest concern that lingers in the mind of nascent entrepreneurs is whether ‘to bootstrap or raise funds?’
Either method has its own share of financial and operational pros and cons. Unless you have some sort of capital-intensive start-up, taking investment won’t make much sense. For internet-based start-ups where deployment costs are relatively low, bootstrapping would be the best option to thrive into the digital era and stay lean for the initial periods.
Now the obvious question that would stuck anyone here- What does bootstrap mean in business?
Bootstrapping is a method of starting a business without any external help or fund. It is a more goal focussed and self- directed path where the entrepreneurs rely on internal cash flow and are very cautious with their expenses. They prove their business ideas before vouching for a large financial burden and only make growth decisions based on how much revenue the company is currently generating.
Now on the other hand, if you are thinking about raising money or opt for an investment option, then ask yourself what you are really trying to get out of this? Do you need money to prove your idea or to grow your business?
The Question Itself is a Big Challenge for Entrepreneurs to Figure Out
Bootstrapping lets you focus on growing the business and less on investor relations. It allows in making independent decisions about the future of your company and retains a high proportion of shares. When your company will generate revenue and you find yourself paying out healthy sums to the investors, it will definitely make you regret your decision for not having opted for bootstrapping.
On the other hand, if you are looking to scale your business quickly, bringing outside resources or capital can prove to be beneficial. With excess capital, you get the opportunity to spend the money on other things that leads to faster and massive growth.
The Pros and Cons of Bootstrapping:
1. Pro: Have Complete Ownership of Your Business
Bootstrapping gives you the freedom to have complete authority in your business. Even with a
co-founder, your share margin will remain profitable which in case of fundraising would get diluted.
Con: Personal Risks are Involved
When bootstrapping a company, entrepreneurs put everything at risk when things don’t go as planned. A start-up always requires some monetary investments for expansion or hiring resources, which of course the owners have to bear.
2. Pro: Can Focus on the Business
Bootstrapping also eliminates a painstaking point that every start-up goes through which is having to impress the investors for raising funds. Usually, the Entrepreneurs who focus on bootstrapping channel their entire focus in growing and improving their product and services. Also this ensures Customer’s money is the best money.
Con: Time Constraint
Bootstrapping a company requires undivided attention and time to put everything in place. Often one has to work on multiple projects simultaneously to deliver the work on time.
3. Pro: Easier Pivoting
When bootstrapping, you can pivot much easier as there is less burden involved from investors and stakeholders. Having absolute decision-making power over your project can be beneficial as you continue to get clients feedback which eventually strengthens your brand in the industry.
Con: Lack of Investor Support
On rare occasions, investors provide more than just money to businesses. They provide strategic connections and valuable advice to contribute to the growth and betterment of the company. Often in many cases, good connections are made through investors who have played a major role in the success of the company.
Bootstrapping can be a great option if the entrepreneurs can execute the idea successfully. If you are planning to embark on the journey of bootstrapping instead of seeking funds, then consider the pros and cons listed above. Furthermore, a bootstrapped company can build a healthy work culture that benefits the organisation in the long run.