These #3 Entrepreneurs Explain how Bootstrapping is One Good Way of Growing Your Start-up Examples of start-ups in emerging industries opting for bootstrapping are many as they identify market opportunities and prefer not to wait for funding to get on board
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Stories of start-ups beginning their journey from a garage and self-funding the way to success are aplenty today. Behemoths like Microsoft, Apple, Amazon, HP and Disney are a few such companies that once started in a garage or tiny shed with a handful of passionate individuals. Many of these businesses bootstrapped in the initial years and only when funding agencies came calling, did they opt for financial support. During the bootstrapping stage, their aim was to establish that they can create a basic product which has market viability. Once the business model was established, funding allowed them to scale up and grow.
Bootstrapping is essentially starting a new venture without external financial support. Bootstrap start-ups rely on the internal incomes only and spend what it makes. The essence of bootstrapping is the idea that you utilize the "sweat capital' rather than the "financier capital' to grow your organization. In other words, you work twice as hard.
Bootstrapping is a Mindset
One of the key things to keep in mind while aiming to be bootstrapped is to have a small stream of alternate income, to keep things float or to keep the lights on. For Kunal Kumar, Founder, Something Cool, a platform that nurtures startups, it was the royalty from his published books, that every once a while empowered him with funds to keep things going.
Kumar adds, "We aim for a bare lean structure which is basic and simple and also presentable to make its existence felt in the world, and much like anything else in the world, it shall flourish and evolve from its bootstrapped version to a more refined version in due time."
Something Cool intends to remain bootstrapped even after it is financially matured and graduates into a big company, bootstrapping or mere simplicity is not something Kumar practices, it is what the start-up's primal nature is.
Opt for Lease and Letter of Credit
Sudip Bose, MD and CEO Assured Digital, feels bootstrapping is a particularly viable option for tech startups: the innovation-based models often indicate low overhead costs. "However, the basic theory of bootstrapping i.e. prioritising cost-efficiency – is valid for every new business in the fast-moving industries that have to remain flexible while growing. Often we see start-ups in emerging industries opting for bootstrapping as they identify market opportunities and prefer not to wait for funding to get on board," he elaborated.
According to Bose, bootstrapped startups must be particularly prudent with finances, as the thin profits are their only funds for growth. In contrast to the VC-funded businesses, a bootstrapped startup should stay away from spending on things line extravagant office space and interior decor.
Spending excessively on equipment and infrastructure may lead to insufficient working capital that keeps a business going in its initial stage. Leasing is the right option for startups to evade financing high-ticket items including equipment, vehicles, furniture, computers and even human resource.
If your startup is dependent on a larger supply chain, customers can help you attain funding by writing a letter of credit. "For instance, if your business is about manufacturing bags and a big company has placed an order for a stable supply and the major supplier of your raw material lives in Bangladesh, you can obtain the textile using the customer's letter of credit as safekeeping," explains Bose.
Mortgaging is in Trend
Many entrepreneurs borrow money against mortgaging personal property. Lenders often lend 75 or 80 percent of a property's worth and this has emerged as a well-accepted financing tool for entrepreneurs since the credits are easy to come by.
"If your start-up requires buying provisions, think of paying in parts over a long-term period of 20 to 25 years. This will help in structuring the loan instalments according to your growth chart. For example, make plans for a mortgage with small monthly payments that raises over time, helping your startup grow," shares Manjir Chatterjee, founder of Folk, an enterprise working with design and manufacturing