9 Advantages Of Bootstrapping Your Company Many companies including GrabOn, Zoho, Wingify have proved that the bootstrapping formula works
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One of the dilemmas that entrepreneurs often face is whether to seek external funding or take the bootstrap route. To ensure resources are adequate and to mitigate risks, many entrepreneurs often end up taking funding. This they believe gets them good traction and helps them grow quickly. That is why funding stories are an everyday phenomenon in India's startup ecosystem.
However, there are many companies including GrabOn, Zoho and Wingify that have proved that the bootstrapping formula works. Zoho is a unicorn that is profitable. Zoho's revenue from operations increased by around 29 per cent to INR 4,274.7 crore during FY20 from INR 3,308 crore in FY19.
"It helps that we are bootstrapped and private and think "we make enough money and don't need to make more and more by compromising ourselves'. Wall Street would crucify any CEO who doesn't at least profess to aim for endless growth, which is why we politely stay away," said Sridhar Vembu, CEO, Zoho Corp, in a tweet.
Here are nine advantages of bootstrapping:
Freedom In Decision-Making
This is the foremost advantage of bootstrapping. The moment you take outside money, you also bring with it the pressure to satisfy the needs of others. You are answerable to many, so the pressure to achieve quick success is high. You will also have more freedom in decision-making. For instance, you can hire the talent that you feel will match the vision of the company.
As you go through many rounds of funding, you are diluting your share of the equity. However, if you are bootstrapping and you are a single founder, you will be the owner of 100 per cent of your business. Even if you have co-founders, you will have a good share of the equity. You can basically own and control the whole pie.
Entrepreneurs often have a clear vision of their company when they start out. With each additional person coming in, there are more opinions and often a deviation from the plans and goals that entrepreneurs had their eyes on. Especially it is often said that once a company goes public, long-term success takes a back seat and quarterly numbers become the target. The long-term vision is often forgotten and the focus goes into what is called vanity metrics to attract investors.
Motivation To Turn Profitable
A positive cash flow and profits are the only way to survive for bootstrapped companies. That may be the reason many bootstrapped companies fail. They run out of money. But to survive as a bootstrapped company, you will be pushed to build a business model that can bring positivity right away. Right products or the right services find success even if it takes time.
More Time In Hand
We often hear founders say that they don't have time for the team as they are busy with investor meetings. However, bootstrapping means you don't have to spend time fund-raising. You also don't have to waste too much time scheduling endless meetings with current investors explaining your growth.
Lesser Risk of Debt
Bootstrapped companies are either self-funded or the loans are taken from friends and family. They are also often small in size. So, these loans are returned very promptly. The chances of having a huge debt is nill. "Attracting angel investors or VCs can be a distraction, plus they'll want a piece of you, and bank loans may load you up with debt that can later bury your firm," writes Verne Harnish, business growth guru and author of Scaling Up.
Good Spending Habits
Minimal resources ensure you don't waste your money on things that are not a priority. This leads to better spending habits in the long run. Founders who bootstrap often postpone additional expenses to the time they turn profitable.
More Focus On Product
Bootstrapping leaves you with lesser distractions. Entrepreneurs who bootstrap often spend more time on creating value for customers rather than focussing on fundraising. They can focus on improving their products or services instead of wasting time seeking approvals. They experiment with products and do course corrections as and when needed. This leads to consistent and sustainable growth.
When you bootstrap, the growth may be slow. However, the freedom you get makes the journey comparatively more stress-free. You don't have to listen to anyone and can have control over the business. You can also have people who align with your vision. If the business model is right and you are walking towards the goal, even if the success is slower, the process is steady and more peaceful.