4 Tremendous Benefits of Bootstrapping a Company Why run to investors when doing it yourself brings your business business benefits?
Opinions expressed by Entrepreneur contributors are their own.
In 2009 I started Cutler PR at the age of 22, in my bedroom, with only $200. I never took a loan, I never borrowed money and I certainly never raised VC funds. Fast-forward seven years, and today we are a booming tech PR agency with tremendous revenue growth and healthy numbers across the board.
I credit bootstrapping as one of the primary elements that helped get us here. Here are four benefits of bootstrapping your company:
1. Emphasizes making money, rather than spending it
The fact that bootstrapped companies need a business model that will produce cash immediately forces you to focus on how to make money, rather than how to spend it -- which would be your requisite focus with loans or VC funding. You learn immediately to appreciate your hard-fought-for money and are more inclined to spend every working hour figuring out how to make more of it, not spend it.
"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.
Bootstrapping also means you don't have to spend time fund-raising. Endless meetings with potential investors eat up valuable time, time that a CEO could have spent building the business organically.
2. Builds 'scrappy' instincts
When you don't have loans or VC money to lean on, you build a strong sense of scrappiness, which can benefit you greatly in the long run. After surviving the early years on super-tight budgets, after barely scraping by, you develop a street-smart mindset about business that will prevent you from becoming reckless with spending. That's important once the business is bigger and the stakes are higher .
"Given who the media covers, it's easy to get the impression that most startups are angel- or venture-funded. But that's not the case, nor should it be," says Donna Fenn, author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success.
3. Forces unconventional thinking
Not having funds to throw at problems forces you to come up with cost-effective, creative ways to solve them. It makes you a better problem-solver. It makes you look for less conventional answers to conventional problems.
There have likely been months when you could barely make payroll and were worried about closing the doors. This kind of pressure forces you to think creatively, to come up with solutions that are out-of-the-box; these are also problems that the luxury of VC money would potentially save you from grappling with -- to your detriment. I personally find that some of the greatest ideas and light-bulb moments are born during these times.
"When you bootstrap, you are forced to get good, fast. As humans, we prefer to put in only as much effort as we need to, but whether we recognize it or not, we all have extra gears," writes Ryan Smith in a recent Harvard Business Review article.
4. Teaches you that ascents are always preceded by descents
Bootstrapping means that there usually isn't a great cash reserve. This can lead to stressful, sometimes scary descents in business. But this is not all bad, because what I find is that these descents are always followed by ascents.
Every time my company has taken a quantum leap, that's happened right after a dip. When you bootstrap, you experience all those little bumps, and big bumps -- because there is no VC money to cushion them.
But being on that kind of roller coaster, you learn the tremendous lesson that ascents are pretty much always preceded by descents. Along the journey, you learn how to soften the ride so that each descent is a little less scary and risky for your business.
Indeed, experiencing dips in the raw way you do that accompanies bootstrapping is often what leads to light-bulb moments and, ultimately, greatness.
As Fenn has written, "Bootstrapping keeps you lean and focused, teaches you how to allocate resources creatively and prevents you from being wasteful or taking anything for granted. These are skills and traits that make great entrepreneurs."
I couldn't agree more.