Bootstrap financing refers to the process of starting or growing a business using personal savings, revenue generated by the business, or small amounts of outside capital. It is also sometimes called “bootstrapping.” In other words, bootstrap financing means relying on one’s own resources and creativity to fund a business venture, rather than seeking large amounts of outside investment.
Bootstrap financing is often used by entrepreneurs who are starting small businesses and do not have access to significant amounts of outside capital. By using their own funds or reinvesting profits back into the business, entrepreneurs can control the pace of growth and minimize their risk of taking on too much debt or losing control of the company.
“Cash is King.”
Debt Service can place significant burdens on profit margins when a business hits the wrong side of a sales cycle. Reinvesting profits is wise but it should be hedged by the monetization of founders skill sets.
Bootstrap financing can also be a viable option for businesses that are looking to expand or pivot in a new direction. Rather than seeking large amounts of outside investment, the business can use its own resources to test new products or services and gradually build up its customer base.
Overall, bootstrap financing can be a smart and effective way to start or grow a business, but it requires a lot of hard work, creativity, and discipline to make it successful.
There are many successful companies that have grown by bootstrapping or relying on their own resources rather than outside investment. Here are a few examples:
MailChimp: The popular email marketing platform MailChimp was started in 2001 by Ben Chestnut and Dan Kurzius. The founders used their own funds to get the company off the ground, and it has since grown into a profitable business with over 800 employees.
Basecamp: Basecamp is a project management software company that was founded in 1999 by Jason Fried and David Heinemeier Hansson. The founders used their own funds to launch the company, and it has since grown into a successful business with millions of users.
GitHub: GitHub is a popular platform for software developers to collaborate and share code. The company was founded in 2008 by Tom Preston-Werner, Chris Wanstrath, and PJ Hyett, who initially used their own funds to launch the business. GitHub was eventually acquired by Microsoft in 2018 for $7.5 billion.
Patagonia: Patagonia is a well-known outdoor clothing and gear company that was founded in 1973 by Yvon Chouinard. Chouinard initially funded the company with $5,000 that he earned from selling climbing equipment out of the back of his car. Patagonia has since grown into a global brand with a reputation for sustainability and ethical business practices.
The recent collapse of the Silicon Valley Bank, due to a VC inspired run, underscores the hedge role a bootstrapping platform must provide.
There are many others out there, and bootstrapping can be a viable option for any entrepreneur who is willing to put in the hard work and creativity required to make it successful.
The fact that fall out from the VC inspired run on SVB caused a rumble of insecurity among regional based banks is a warning sign that Founders should take note. Startups often use debt instruments to extend the cash runway in the build up to the next funding round.
During the banking crisis of 2007, improvident actions by a significant number of banks created a liquidity issue. Several banks resorted to squeeze lines of credit that companies needed as operational funds. The squeeze was followed up with a cash freeze. Several viable Startups and even established Companies dependent on these debt instruments were forced into failure.
When Venture Capital shrinks or a Founder seeks firmer control over the development of the Startup a Strategic Bootstrapping Finance Platform needs to be developed. It is a solid business practice to have this Platform as a funding option throughout the Startup and through the Enterprise stage.
Bootstrapping is a wide-open field of options. The same effort that is used to prepare for the “roadshow” will be needed for the build-out of the right Bootstrapping Platform. The goal of a viable Platform is to align a short path to funds with the lowest burden cost in generating the funds.
A bootstrapping model that utilizes savings should be the last option. A model that raises capital by borrowing from family and friends can create an awkward Thanksgiving.
The best model is to conduct research into the digital marketing company that is experienced in developing bootstrapping platforms for startups. A successful model aligns the analysis with the skill sets of the founders for quick development into media products and the sale of the same through direct marketing on a newly created business platform and or through existing consultancy platforms. Tech based founders have varied engineering consultancy gigs that can be aggregated into a designated fund. There are well known tech companies that utilized this bootstrap model. But the case study of the Jackson Fish Market, is insightful. One of the company’s founders wrote an article that appeared in Geek Wire. The Founders had deep tech experience and they were able to fund their startup with aggregated tech consultancy. The important note is the Founders had no savings, or rich relatives on hand to support themselves much less a Startup.
The non-tech Startups can also utilize this type of platform. In one case study, the Founder utilized self-educated experience into traditional educational media and transformed the products into digital educational products. The Founders insight to align her skills to bootstrap the Startup offering, supported a successful Startup, Lynda.com which closed on an acquisition of $1.5 billion in cash and stock by LinkedIn.
As established companies are concerned about the possibility of a new bank crisis, the drive to build a hedge bootstrapping platform should be obvious. There is an institutional concern that the platform will divert the enterprise from its core business. That position is sound and needs to be addressed in the buildout of the corporate funding platform.
A skilled professional in this sector will help build the platform that compliments the core business with a stable source of capital while reducing an imposition on the core business offering.