Bootstrapping was not a term I had even heard of when I started in business. Though I suspect that buying ingredients from the local corner shop to make sandwiches and flog them round offices is definitely wholly bootstrapped.
Bootstrapped businesses are ones that have got off the ground with minimal borrowing, usually, only personal or friends and family cash, keep outgoings minimal, and fund both their existence and their growth by sales.
Many entrepreneurs have managed to get businesses off the ground this way, either by choice or necessity, and grow them beyond all expectations.
25 Great ideas for bootstrapping
- The term bootstrapping comes from the phrase “pulling yourself up by your own bootstraps,” and to me, that is a brilliant definition of entrepreneurship. Isn’t that what we all set out to do, to take charge of the quality of our lives?
- I have Simon Paine of the PopUp Business School in part to thank for this article. He inspires his students to “avoid debt like your most annoying cousin” and that once you have put the idea of financing to one side, all you need to have a business is one customer. That is a pretty electrifying concept.
- With grim economic times upon us, we are expecting job losses on a scary scale. Cody Sperber of the 100 Million Academy talks of the need to recession-proof yourself and what better than a side hustle. And it makes sense to bootstrap any side hustle.
- Oliver Woolley of Envestors told me that only 2% of businesses are successful in raising finance once past the friends and family stage. Only 2%! That is setting yourself on a long walk to nowhere when you could be out there, generating money, growing a company, creating jobs.
- The majority of companies can be started anywhere, without the need for rents and glamourous offices. Simon Paine held his first class in the back of a woodshed. Steve Jobs and Steve Wozniak started building computers (and therefore Apple) in a garage owned by Steve Job’s parents.
- We can learn from the Apple story how they worked on products to get straight out to market (Minimal Viable Product- MVP). Their earliest capital came from making a box that enabled people to make long-distance phone calls for free. Making another product to fund your big idea is a typical bootstrapping technique. Then came Apple1. It wasn’t the perfect product that was their end goal. It was a product that paid for them to be in business while creating their ideal. Bootstrapping means paying your way.
- Starting bootstrapped doesn’t stop you from ending up with a company worth billions. Look at Apple for one. Facebook is another. Zuckerberg wrote his Facemash program, which then became Facebook while in his 2nd year on campus with the help of other students. Admittedly they later sued him for some $300M in shares in return, but never the less it would not have come into being without being wholly bootstrapped.
- Another company that used pre-sales to fund their growth is the phenomenally successful Tough Mudder. Will Dean risked $7,000 of personal savings and alongside partner Guy Livingstone built the company by selling pre-registrations to the events. They then used that cash to construct the obstacle courses that are known all around the world. Spartan Race acquired the company in 2020 after Tough Mudder had filed for bankruptcy.
- One of the enormous pro-s is that you keep control of much of your company’s equity, at least till it reaches a very major investment stage. Abe and Regina of Ellie Grid talked to me of this. With a business heading for the big time, they are happy to own most of it still.
- It is more than just retaining financial control. It is about controlling the ethos and the aims of the company. And that is pretty important too.
- Sara Blakely is another famously successful entrepreneur, having founded Spanx. She took out a personal loan (not a route for everyone) but did everything she could herself. Sara also founded the company’s growth from the sales it did, concentrating on getting big orders fast. She remained the 100% owner throughout its immense growth and turned that $5,000 loan into a personal worth of over a billion.
- Another company that started as a side hustle while its founders kept the pennies rolling in by doing web development jobs is MailChimp. Founded in 2001, it had a revenue of c—$ 700m in 2019. And yes, this too is still privately owned, turning down all Venture Capital investment offers.
- Businesses can be created at weekends. The founders of GitHub were a group of developers who got together after a local programming meeting. They then gave up their spare time to develop the company, only investing in the domain and minuscule set up costs. Their belief in what they were doing kept them all working for nothing. They remained bootstrapped for four years before winning TechCrunch‘s best-bootstrapped startup of 2008. By 2016, GitHub was ranked No. 14 on the Forbes Cloud 100 list
- On the subject of TechCrunch, they too were bootstrapped. Mike Arrington and Keith Teare saw the opportunity that Silicon Valley presented, and used quality journalism to quickly turn a blog space into the authority on all things tech. Only five years after its starting up, it was acquired by AOL for around $25m
- Even in Silicon Valley, the garages were busy. Two Stanford University graduates, David Packard and William Redington Hewlett were unable to find jobs due to a much earlier recession. Their original investment was $538. Starting in a garage, with a few brilliant inventions and a massive determination, the company morphed into Hewlett Packard as we know it today. A recession not only should not stop a bootstrapped business starting, but it can also provide employment when a job cannot be found.
- No garage? No problem. Pierre Omidyar started his company in his living room. Auction Web was a small section of a much larger site he was experimenting with. It enabled people to buy collectible items. To his surprise, Auction Web went so well, he needed to work full time on it within nine months and, within two years, had changed the company name to eBay. Six years later, Omidyar was a billionaire.
- You may already have the makings of a business hidden in your hobby. A keen amateur photographer and software developer called Jon Oringer had the idea of using 30,000 photos that he had taken himself for pleasure into an online, subscription-only photo library. Shutterstock was floated on the New York Stock Exchange in 2012 though Oringer still owns around 46%.
- One of the secrets to successful bootstrapping is to fund the growth with sales and get your customers to provide your funding. Mailchimp’s early years were financed by the subscriptions their customers paid to use their technology. To expand, they offered a basic level for free (though it cost them nothing as it already existed and Cloud had made far less expensive) but said that anyone who wanted the new, improved version would have to pay more. So, their development was continually funded by their customers.
- Mail chimp is an excellent example of bootstrapping and delivering customer validation as you go along. This example demonstrates another massive advantage of bootstrapping. Because the founders stay closer to the customers, they are better able to understand them and provide value from them, which, of course, puts them ahead of the competition.
- There is little evidence that bootstrapped companies have better odds at success than those with early seed investment. The bootstrapped ones can show stronger balance sheets because they have no borrowing power to get into debt even if they wanted to. Therefore, it is easier for people to use when they have a short cash cycle and has to be subject to very tight cash flow management.
- People argue that bootstrapped businesses are held back by a lack of capital. It may take a little longer, but when you look at the size of the success stories that didn’t raise money at the start, it is hard to be concerned. Their expenditure is approached with a very different hat on by a bootstrapped company – every expense is dissected before committing because it literally is “your money.” That is the best course of financial management you could ever go on.
- People are often a company’s highest cost. For bootstrapped companies, the answer has to lie in getting people who are so passionate about your vision, that they are happy to work for less than the going rate, or are happy to accept equity as part of their package. This would still be minor amounts of equity given away compared to what you would give any investor.
- Being careful with your money simply means thinking outside the box. Guerrilla Marketing campaigns can be vital. If you want inspiration about how effective that can be, look at Foursquare at a 2010 Convention. They couldn’t have a booth to sell from, so they set up a game of Foursquare slap bang in front of the convention hall. Costs involved were some chalk and rubber balls, but they grew their average check-ins by 100k.
- Depending on the life cycle you have planned for the business (and I do believe in always having a planned exit or at least exit option), you can reinvest profits towards your aims and the strength of the business rather than see them creamed off by investors.
- People will argue that investors bring connections you couldn’t get elsewhere. Only some do. But in any case, if this is an aspect that is important to your business, you can work on it yourself. Bill Gates practiced his advice of developing twenty-five relationships that he needed to get his business where it needed to be. However, outlandish those names, be they politicians, educators, publicists, fellow business people, work your network, write to people, work up till you have assembled a far more diverse and ideal twenty-five than any investor could bring. Gates and childhood friend, Paul Allen, bootstrapped themselves through Traf-O-Data (literally analyzing vehicle traffic data) right through till their eventual breakthrough and the birth of Microsoft.
Twenty five very good reasons to look at starting a bootstrapped business.