The art of bootstrapping involves launching and growing your startup without external funding. Entrepreneurs entering the American business landscape face the significant challenge of setting up a new business without financial support.
But this challenge is not impossible to surmount. Statistics indicate that the United States has the largest number of startups worldwide, with the tally standing at 75,056. Of these, at least 78% use their personal funding to launch the business. And 58% start off with a capital of less than $25,000.
Understanding What is the Art of Bootstrapping
Lack of funding need not be a deterrent for establishing and running a new venture. Startup founders can rely on personal savings and income to set up the business. They can also deploy low-cost or free resources and reinvest the initial revenues they earn toward growing the company.
The objective here is to build a sustainable business model by minimizing costs and using available resources. Not relying on outside investors can be incredibly challenging. But entrepreneurs enjoy benefits like being in complete control of the company’s decision-making processes without external interference and accountability.
The Ultimate Guide To Pitch Decks
Why Learn The Art Of Bootstrapping
Bootstrapping a business comes with several advantages. The most critical pro is the ability to test the business idea without financial risk. Relying on personal funds forces founders to make prudent, well-thought-out decisions, which contribute to building a strong foundation.
A shoestring budget prompts cutting back on wasteful spending wherever possible and roping in free or rental equipment and tools. But bootstrapping does come with downsides.
If you’ve dived headlong into the venture full-time, not being able to support yourself before the startup generates an income can seem daunting. Savings can only take you so far. The lack of regular cash flow could also make it hard to hire a team and top talent to get the venture off the ground.
This is why successful founders advise you to partner with a co-founder to pool resources and work hours. What else can you do to ensure that the venture is one of the 40% of startups that eventually become successful? Read ahead to know more.
How to Bootstrap Your Business – Start By Set Up a Robust Business Plan
Come up with a robust business plan that clearly defines the company’s mission, objectives, customer base, and revenue sources. Use it as a roadmap for guidance as the company grows.
Running a business involves multiple facets, such as sales, marketing, advertising, customer acquisition, bookkeeping, accounting, and more. Having a roadmap will ensure focus on the core business so you outsource other tasks.
Since you intend to bootstrap the company, the business plan will help identify sources for acquiring the initial resources. You’ll answer questions like where you’ll work, how to advertise, how to procure low-cost inventory, and where to find customers.
Consider Strategic Partnerships
Look for other startup owners developing complementary products who might be interested in creating alliances. You could share resources and expertise and cater to a shared customer base.
Think about offering combo deals at introductory prices and sharing marketing and distribution channels and costs.
High Capital Startups
A well-defined business plan is critical for founders starting a company that needs a high upfront investment. If you need to invest in expensive equipment, tools, machinery, rent, and other overheads, you’ll need a strategy to acquire the funding. And just bootstrapping may not be the right move.
Consider getting co-founders or partners who can bring in the necessary capital. Or, explore options like taking a loan, a business credit card, or a line of credit.
Alternatively, you’ll experiment with an eCommerce or service-driven business to test the idea. If it shows potential, think about applying to an incubator or accelerator program to kickstart the venture.
Tapping into crowdfunding sources of funding is also a great solution. You don’t need to offer interest to your small investors; instead, you could interest them in product design. Pay for their investment by delivering products at low or discounted prices in exchange for funding.
An additional advantage is that their interest will validate the business idea, and you can use the responses to perfect the product, pricing, and logistics. Research indicates that the CAGR from 2023 through 2027 for crowdfunding transactions is likely to be 2.11%. The estimated amount is $1.23 billion by 2027.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Start With Small Steps
One of the key aspects of the art of bootstrapping is to start with small steps. Don’t quit a full-time job just yet, but consider experimenting with the business idea as a side hustle. The new startup is not ready to pay you, and the income will help sustain the investment.
Refrain from investing in office space; instead, make do with a home office, coworking cubicle, or garage. If you need equipment, rent, borrow, or get used. Search around for free resources available on the internet, like open-source software and cloud-based applications.
Sign up for free courses on growing a business and download free WordPress templates for the company website. Designing and registering the logo and brand name is easily done with the minimum costs, as is hosting the website on a server.
Use the Facebook marketplace to advertise the company and start selling your products. As for additional marketing tools, tap into social media to create a buzz for your products before they are ready for launch.
If you need specialized skills, consider getting contractors and freelancers instead of full-time talent. Get creative with cost-cutting solutions like assistance from friends and family. You can always pay them with free products or tokens of appreciation later.
Most importantly, don’t be hesitant about using word of mouth or community information boards as a no-cost advertising strategy. The responses will help you gauge if the business concept has what it takes to capture the market.
Take Your Time Developing the Product Prototype
Learning the art of bootstrapping will teach you that not having external funding means you can take it slow. Developing a working product prototype need not be a rush job. Take your time perfecting the end result before it’s ready for testing and sale.
Build on a business idea you’re enthusiastic about and confident will work. If you can devote after-work hours and entire weekends to developing the product, that’s the concept worth pursuing.
Successful founders are open to giving out their products for free as a limited-time offer or beta version like in software. This strategy allows for testing on actual customers and getting their feedback. Use their reviews to identify flaws and correct them before putting a price tag and making your first sale.
A sure-shot strategy is to come up with a Minimum Viable Product (MVP) that is unique and unlike existing brands. Alternatively, make sure it solves a real problem customers are facing.
Offering discounts and a low price tag are great ways to attract customer interest. However, many top brands have captured the market by adding an element of exclusivity to their products. Handmade, limited edition, or made with unique and unusual materials–features like these enable you to develop a range of high-value items that attract top-tier customers.
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Don’t be Afraid to Build on an Existing Concept
When trying to get a feel for the industry, many founders start off with existing concepts that are doing well in the market. They develop similar products keeping a close watch on patents and copyright issues.
Typically, small businesses operating in a limited space or geographical area are not competition for established brands. But they can gain recognition for their brand name in local areas by targeting a limited customer base.
Over time, as the business grows, you could identify unique products or versions that could instantly catapult the brand into the big league.
Sustain the New Company with Revenues
The art of bootstrapping is about generating revenues as early as you can. When researching the viability of the business concept, your focus should be on the target market and customer base. Also, work out how to reach this market and customer acquisition costs.
Once you have the MVP, reach out to paying customers and ensure consistent cash flows. That’s how you’ll sustain and grow the venture through the first year and the next five years. Reinvesting revenues and profits into the business is a cost-effective strategy to sustain the company in its fledgling stage.
Keeping a close watch on the cash flow will also help determine the right time to work out further growth strategies. If you see positive numbers, the company is poised for expansion. But, if you see negative numbers, it needs an infusion of capital.
Customizing products per individual customer demands may seem doable when you’re excited about initial orders. However, make sure the pricing structure compensates for the additional time and effort that goes into it. Also, offer free trials and discounted pricing to attract your first clients.
Use Networking to Build a Presence for the Company
Adopt networking skills both in-person and virtually to build connections. Networks needn’t be only about attracting investors, though starting early will give you a head start with developing credibility. When you’re ready to grow the company and invite investors, relationships will get you there.
Networks can also be about potential customers interested in your products and other entrepreneurs building startups in your industry. Sharing valuable tips and exchanging technical information can help you form mutually beneficial partnerships in the future.
Make an effort to attend networking events, conferences, trade shows, and any other occasions where you’ll introduce the new company. Also, find online communities and sign up on professional platforms like LinkedIn. Create a profile and regularly post updated information about your products and startup.
Even as you’re reading about how to start a business without external funding, you might want to consider the pros and cons of bootstrapping. Check out this video I have created, where I explain everything you need to know. You’re sure to find it helpful.
Expect to Work Hard
Learning and implementing the art of bootstrapping involves a lot of hard work and dedication. Expect to work long hours to get the new company off the ground. Handling every aspect of the business, including sales, marketing, production, and research and development, is hard for the founders.
But, along the way, they develop a keen understanding of how the market operates—all the while maintaining control of the company. When you’re ready to hire people to do the job, the hiring and orientation will proceed smoothly.
Being the only decision-makers for the company adds yet another advantage. You can take action instantly without wasting time in getting investor approvals. Learn to think on your feet to make the right impact at the opportune moment for long-term success.
Bootstrapping a new company comes with unexpected problems. Founders developing their business plan anticipate possible pitfalls and have contingencies for them. However, be prepared to solve issues and come up with solutions.
Founders should also be ready to adapt to changing situations. If you can be flexible enough to make changes in the original core business, that’s the gateway to success.
Accept customer feedback and, if necessary, pivot from the product range or design you first envisioned. Above all, trust your gut. And, don’t be afraid of the prospect of failure.
The art of bootstrapping a startup involves several challenges but also comes with its share of rewards. Founders can set up and manage the company at their own pace and make decisions that align with their mission and vision.
The ability to run the startup without interference from investors and take credit for its success is well worth the hard work. Use the tips listed above to found your business with the minimum costs.
Don’t hesitate to use your personal resources when it comes to cost-cutting. If needed, rope in co-founders and entrepreneurs developing similar products to share costs and resources.
Tap into social media and networking channels to create a buzz for your products well before the actual launch.
Keep the cash flow consistent and reinvest the profits back into the business to sustain costs and fuel growth. Stay flexible to changing conditions, lean, and agile to achieve long-term success.
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