Bootstrapped businesses barely get the media attention of our industry.
Unlike the well-funded startups that have gone on to become a part of the “Unicorn Club” with high evaluations and million-dollar exits, bootstrapped startups live in obscurity.
Yet, obscurity does wonders for them. While the well-funded startups fail in bulk, the bootstrapped ones work assiduously to their way to the top.
Take the example of Braintree payments that survived for four years before raising 69 million dollars from sequoia capital. The funding was followed by a 500 million dollar acquisition. (source: https://techcrunch.com/2017/07/01/invisible-unicorns-35-big-companies-that-started-with-little-or-no-money/)
For me – that is how a business is built. Which brings me to another important question “Why are so many funded startups a failure?”
To start with, the funded ones forget one basic rule of running a business.
“Businesses should bootstrap. Get some traction and then get an Investor”. I wish they taught how to bootstrap a business as a part of a curriculum of an online business course for small businesses.
Burning cash on customer acquisition in an unplanned way will not lead your startup anywhere.
Well! Our startups forgot the basic fundamental of business. Hence, the turmoil.
What is bootstrapping in business?
For a business, bootstrapping means starting a business with limited financial investment from startup founders.
I call it the lab where you experiment with limited resources.
Having bootstrapped my startup, I can write with assurance the experiences gained while working with limited resources are invaluable.
The experiences that are not taught in Business Schools.
Imagine a scenario. You are running a startup with only cash to survive for six months.
You have to feed yourself, and you have to supply a business that has an insatiable appetite for money.
There are chances; you will always be short of money.
Startup founders, once out of the first years of “bootstrapped startups,” are Smart Business Owners. They understand the value of money.
This is where my thought process is entirely different from the young entrepreneurs of today. They are more interested in understanding “How to raise funds from Investors?” than understanding the basics of building a business.
I, on the other hand, like to understand more about the profitability of a business and then start it – bootstrapped.
Here are the reasons why every startup should bootstrap:
1. You learn to use your resource optimally
Bootstrapped startups are always short on resources. Be it Money, employees, furniture, or any essential supply to run a company.
There are times, even the essentials of the office like stationery and coffee might be short in supply :).
By the time the startup owners of bootstrapped startups are done paying rent and employees at the end of the month, they have expenses for the next month staring down at them.
The whole experience teaches you the art of planning Money and the Value of Money.
You learn why every single penny is essential in business. Your employees hate you for being a miser. You don’t give two hoots about what anyone thinks of you.
You are trying to build the next big thing with limited or no resources.
I call it a blessing in disguise.
Running a bootstrapped startup means, Startup Owners learn to make the best out of the worst. The founders upgrade their skills by learning on the job.
In one of our new e-commerce businesses, we learned Taxation, product procurement, Selling on e-commerce platforms, and other aspects of e-commerce business because we could not afford a full-time accountant or a Manager when we started.
Not only did it teach me how all parts of business machinery have to work in sync to create a successful venture, but it also taught me an essential aspect of a business called “Empathy.”
Today, when we have employees in all divisions, I can handle them smartly. I also can empathize with the issues faced by them, as I have been a part of the drill. The learning has been steep and enjoyable.
I understand that every single day is a struggle when you are bootstrapping.
2. You learn to respect “money.”
Remember the good old days, when our parents spoke about the value of “hard-earned” Money.
So what exactly is the magic behind “hard-earned” Money?
Well. To understand the same, you got to earn some of your own. And you don’t make money when your balance sheet shows negative at the end of the financial year.
The point I am trying to put across here is that we should know from day one, “How to make profits.”
Businesses are set up to make profits. At the end of the day, profits have to show. You cannot wait until eternity to make profits.
So why are the heavily funded startups not making any profits? To start with, they are spending more than they are earning with no clear plan of when the expenditure will stop.
All they are worried about is when the next funding will come, and at what evaluation will it arrive?
Now, bootstrapped startups don’t have the luxury of allowing the Money to go down the drain. From day one, they have limited Money.
They are focused on cutting expenses and increasing revenue.
There are so many instances of us controlling our cost and focussing on revenue, which allowed us to break even sooner than we had expected.
The focus for us from day 1 was to get in profits. I doubled up as a marketing person, operations head, and accounts administrator to save us from unnecessary salary expenses.
Another “blessing in disguise” of running a bootstrapped startup is the learning you get by donning multiple hats and trying everything hands-on.
Bootstrapped companies rarely have the money to hire every single person in every division.
So you see bootstrapped ventures, where owners double up as sales, marketing, HR, Development, delivery boys.
The experience of donning different hats is unmatched. You become an all-rounder who understands every aspect of the business.
I write this from personal experience. In the last few years of our business, I have literally handled every single department of our company as an employee.
3. You get to write your own story
Why did you become an entrepreneur?
You had a cozy job. Good salary. Luxurious weekends. Why on earth would you want to start something so taxing?
I started as I was never satisfied with what I did. I was a coder working on a small module of a big project in a bigger office.
Everything other than what I did was significant. I did not like my job. Within one year, I quit – to start our startup.
One of the inspirations to start something of my own came from my thought process of not working under anyone.
There are two reasons we have never tried to raise funds from VCs for our company:
- We do not like to be controlled by investors.
- Our growth story is our Story. Not a story of a company funded by a few VCs. We take much pride in our success story. We have built this company from scratch by working our asses off.
The hard work, pain, agony is all ours, and we are kind of selfish in not sharing it with others.
I have so much respect for bootstrapped startups. They are the ones who learn to do business in the right way by learning the basics of running a business. They build the platform and then expand smartly over the same.
When they turn into business unicorns (not to confuse with startup unicorns), the journey is worth every single minute they have spent through this painful process.
Startups funded with millions of dollars cannot understand what it is like to run a venture without funding.
They are like athletes on steroids (funds from VCs), whereas bootstrapped startups fight it out on their own without any external help.
This is why every business needs to bootstrap.
You might even fail or wind up your venture because of financial woes.
The bitter truth is, most of the bootstrapped startups wind up in the first years of operation.
It’s tough being an owner of a bootstrapped startup.
Frankly speaking, the owners of Bootstrapped startups are not at all similar to the smiling entrepreneurs featuring on cover pages of business magazines. They are bootstrapped. i.e., they are busy trying to build most out of nothing.
I have personally been part of a bootstrapped startup, which I started with my partner a few years back and understand the agony of building a business with tiny finances.
Do you still think you need an investor to make it significant?
Time to review your strategy!
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Jasmeet is an entrepreneur, avid reader, Startup Consultant, and a reluctant blogger at Lessons At Startup. A regular family guy and a proud father of two adorable kids.