What Is Bootstrapping? The Guide to Self-Funding Your Startup

Money. Every business needs it. Where your capital comes from determines who controls your business. Bootstrapping is the process of self-financing a business whether you’re in the seed capital phase (when you’re getting your business off the ground) or the customer-funded stage (when you’re using profits to finance the continued growth of your business).

Bootstrapping is an incredibly popular method for funding a new business. According to Fundable , the majority of startups are bootstrapped. What makes funding such an entrepreneurial favorite? It lets you maintain control over your business. You don’t have to worry about finding access to or competing for outside investors. And it can keep your business agile and self-sufficient. Bootstrapping also requires discipline, creativity, and ingenuity.

In this guide, we’ll walk you through everything you need to know about bootstrapping, starting with what it is. We’ll also cover the pros, the cons, tips for how to bootstrap your business, and resources that will help you develop your business without adding to your overhead costs. What Is Bootstrapping?

Bootstrapping is the practice of self-financing a business with its own capital. Bootstrapping can refer to an entrepreneur investing their own funds to finance a startup, or it can refer to a more established business using their own capital to fund growth (like opening a new store, hiring new employees, expanding product offerings, etc).

Starting a business from scratch can provide autonomy but invites challenges a VC-funded startup typically avoids. So, here are some advantages and disadvantages of bootstrapping your business. Advantages of Bootstrapping Your Business

You maintain your equity.

You control the major decisions for your business. You won’t have to get approval from outside investors.

If you decide to seek external investment from venture capital (VC) later on, it may be easier to get a clean capitalization structure if you don’t have previous investors.

You don’t have to worry about repaying a loan with potentially high-interest rates. Most private loan options for startups come with a pretty high cost of capital because of the risk to the lender.

Less outside stress. When you bootstrap your business, you don’t have to deal with the pressures of external funding that can add a lot of stress to a time that is already stressful for any entrepreneur.

Disadvantages of Bootstrapping Your Business

Your business may grow at a slower rate (at least at first).

It requires you, the entrepreneur, to take more financial risk.

It can be difficult to find the capital you need and manage it well enough to ensure your cash flow stays steady.

What Are the Other Options for Funding a Startup?

Friends and Family Funding: Many entrepreneurs choose to fund their businesses by asking friends and family. In some cases, friends and family invest in exchange for equity. In others, the funds are provided as a loan. For some, the money is “gifted,” allowing entrepreneurs to bootstrap with a little background help (lucky).

Angel Investors: Angel investors are early-stage investors. They are often independently wealthy private individuals, though angel investing networks do exist, in exchange for equity.

Venture Capital: Venture capital and private equity typically invest in more established businesses with high-growth potential. A venture capitalist isn’t looking to start a fire, they’re looking to pour gasoline on something that’s already working.

Crowdfunding: Crowdfunding is another bootstrapping-adjacent funding model. Crowdfunding is the process of raising capital through small amounts of money from large numbers of people. Crowdfunding “investors” don’t get equity. Instead, they usually receive the product or other perks in exchange for their “investment.” Business Loans: A business loan allows you to borrow capital from a lender that must be repaid, plus interest. Business loans allow you to retain full control of the company (you don’t have to give up any equity), but they can come with a high cost of capital. Whether or not this is the right choice for you depends on your business and the loan in question. If you want to know more about alternative ways to finance a startup, check out our complete guide to startup funding . How to Bootstrap a Startup Now that you understand what bootstrapping is, here’s how you can apply it to your business. Reduce Costs Buy used equipment. Rent when possible. Start your business as a side hustle, so you don’t have the pressure of immediately making enough money to offset your salary. Start your business from home to reduce office costs. Hire freelancers or work with consultants rather than hiring full-time employees. Carefully consider your […]

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