How to Bootstrap Your Way to a Debt-Free Company
If you can scale your expectations and business model to grow with revenue, you will increase your chances of building a debt-free company.
Opinions expressed by Entrepreneur contributors are their own.
Have you heard "do what you love, love what you do"? I'm lucky enough to say that, for me, this adage has come true. I started my business as a side hustle in the spare time I could find from my full-time job. The idea was actually born from another "on the side" project: investing in real estate and managing the properties myself.
My frustrations with the lack of technology to help me efficiently and effectively manage my rental properties turned into a personal passion: I wanted to develop an easy-to-use software platform to make life easier for landlords (including myself). I decided to share my program publicly, for free, and fairly quickly, users were requesting more features to help them manage their properties.
Thus, my company was born. I began charging money for advanced features as I developed them, and I was using these features myself to manage my own properties. It was like the perfect "circle of life." With the additional revenue stream, I was able to hire my first employees and make it official. Over the past decade, my company has grown to serve more than 16,000 landlords across the United States, helping them manage approximately 520,000 rental properties. And we achieved this kind of phenomenal growth without any outside investment and with absolutely zero debt.
Related: How to Decide Whether to Crowdfund or Bootstrap Your Business
Many of us remember the Silicon Valley days of the 1990s when software startups were being funded by venture capitalists and investors. This "dot com" bubble burst rather spectacularly, which should have left us with a collectively more cautious startup environment. Yet even today, we're constantly reading about unprofitable startups and their latest round of funding. While taking outside investment certainly does not spell failure, it isn't a recipe for success either. I've been approached by venture capitalists multiple times throughout Rentec Direct's history but, in my opinion, avoiding this kind of debt is part of the reason we've found success as a company. For one thing, when you are homegrown and self-funded, you can hyperfocus on the needs of clients rather than cater to the needs of investors.
Here's how to grow your business without going into debt.
Reinvest for the long term
Aim to invest any money you make back into the business. Ideally, get the business to a profitable level before giving yourself a paycheck. I invested in technology and automation up front because my goal was to create a platform that would run on its own (my plan in the beginning was to stay at my "day job"). This resulted in a model that, for us, has been profitable and never put us in the red.
Spend only what your business makes
Because we prioritized automation from the beginning, our income has always exceeded our expenses. We've avoided having to borrow money to pay for technology, development or personnel. For every company, this "light bulb" moment will be different, but setting up an infrastructure that encourages positive cash flow from the outset will keep debt out of the picture. Making a profit or securing outside funding and then spending lavishly on hiring sprees, state-of-the-art office buildings or extravagant events is rarely the right choice for successful startups.
Related: 8 Bulletproof Ways to Bootstrap Your Business
Expect the worst
It sounds depressing, but this mentality works. If you prepare for the worst case scenario every time, you'll decrease your chances of underachieving and skewing your business results. If your team predicts 50,000 new clients in the next year, count on those projections being off. If you do end up opting for funding or a loan, do it on the basis that you'll likely achieve 25% of set expectations. If you exceed, great, but if you don't, you won't be letting down your investors or yourself.
Stability over publicity
While public relations and reputation are certainly important, prioritize providing stability for your family and your employees over landing a magazine cover. The more modest approach is more likely to provide long-term stability for your company. Outside investment and quick growth might lead to fast fame, but it could come at the risk of a less stable long-term business.
The bootstrap business model of growing a company without outside funding is not a new concept, but it is one that is often overlooked when innovators see dollar signs and growth potential from multi-million-dollar startup capital. If you scale both your expectations and business model to grow with your revenue, you will increase your chances of building a debt-free company. And you might even end up doing something you really love.