Bootstrapping 101: Pros & Cons, Tips & Tricks

The past couple of years have been rough on the startup community – from the tech layoffs to countless startups going out of business or struggling to raise capital. But one group of startups is doing better than the others during the capital crunch – the bootstrapped startups. We’ve said it before and persist that it’s a better time than ever to be bootstrapping right now. 

But how to survive and thrive as a bootstrapped startup? Let’s find out. 

The term “bootstrapping” comes from the expression “pulling oneself up by one’s bootstraps” – a physical impossibility that conveys the challenge of self-initiation and self-sustainability. In the business context, bootstrapping refers to starting and building a company with little to no external capital. Entrepreneurs “pull themselves up” by using their own resources, personal savings, and revenue generated by the business, rather than relying on external investments or loans. 

The appeal of bootstrapping is evident for entrepreneurs – they don’t have to take on debt or give away equity, staying in control of their company. It’s an especially suitable strategy during challenging economic times because it focuses on self-reliance, financial discipline, and sustainable, organic growth.

7 ways bootstrapped startups do things differently than funded startups 

Times have been exceptionally rough in the startup world recently. Companies like WeWork which raised more than $11 billion or Olive AI, a healthcare start-up that raised $852 million, filed for bankruptcy. Some investors say that tech start-up collapse is only beginning. Many once-promising tech companies are now going out of business only because they run out of time and money. 

This wouldn’t be the case when the companies were self-sufficient from the start. We know that becoming profitable is often like an afterthought in the startup world – something even the biggest tech giants still haven’t reached. But bootstrapped startups can’t afford to take this road, literally. 

Here are the key ways bootstrapped startups do things differently than funded startups. 

Self-funding – bootstrapping founders usually use their own funds for initial product development, marketing, and operations to get the company off the ground. Lean operations – yes, many startups take this approach, but bootstrapped startups take efficiency and cost-effectiveness to the next level. This might involve working from home, using open-source software, outsourcing tasks, and cutting unnecessary expenses.Focus on revenue – bootstrapped startups need to generate revenue from the beginning, they can’t stay in the pre-revenue phase for long. Hyper-focus on customers – bootstrapped startups must have fast and agile customer feedback loops. This customer-centric approach helps them keep up with existing market demand, instead of spending ages on demand generation. Slow and sustainable growth – bootstrapped startups need to pace themselves, instead of aiming for rapid expansion. They focus on building a solid foundation and ensuring that the business remains viable in the long term.Alternative financing – bootstrapping founders sometimes explore alternative financing options, such as crowdfunding, grants, or strategic partnerships, to supplement their funds. Earning and reinvesting profits – instead of seeking external funding, bootstrapped founders aim to become profitable as fast as possible and then reinvest those profits back into the business. 

As you can see, financial discipline is crucial with limited resources. While funded startups often splurge on conveniences from hiring to office setups, bootstrapped founders have to carefully manage their cash flow, prioritize essentials, and focus on the sustainability of the business.

Pros of bootstrapping a startup 

You stay in control of your business – investors’ money comes with strings attached. Instead of building your own vision, you’re reporting to people who might have a different idea of where your business should be going. Bootstrapping leaves you in control of the business allowing you to keep creative and visionary freedom. It also leaves you more of the profits. With fundraising, the founder’s equity can get so diluted in the end that they have all the responsibility of a billion-dollar startup but a fraction of the profits. You could be financially much better off owning and running a smaller company.You can keep focus or change directions – the more investors you have on board, the more you’re catering to their short-term interests rather than the long-term interests of your company or your mission. Seeking maximum growth to satisfy investors or succeed in the next funding round makes companies overhire, dilute their efforts, and leave them scattered all over the place. Bootstrappers have fewer outside distractions and can keep their focus on their vision and their customers. Your startup is more resilient and adaptable – the bigger you get, the harder it is to steer the ship or change directions altogether. When you’re a big yet unprofitable company, covering your overhead depends on securing a steady flow of investments. As we’ve recently seen, the moment when the economic tides turn, these companies go belly up. Bootstrapping gives you and your company the sustainability and flexibility to overcome challenging times. You’re nimble enough to steer and pivot without much trouble.You build something that works – staying small means embracing the lean approach. This helps you get to a viable business model as fast as possible, through experimentation, iteration, and validated learning. We all know that most unicorns are not profitable, yet keep adding new directions to pursue, with no break-even point in sight. Often, they’re going in the wrong direction fast. Bootstrapping startups need to make a positive cash flow from early on and that’s a great place to scale from.You can foster the culture you want – the unicorn culture has led to several toxic workplace practices. Even if your company has started with a different culture, it’s hard to keep it up amid rapid growth and recruitment. As a strong and steady bootstrapper, you can foster the culture and values you truly want, handpick the best people to match the team and cultivate a more enjoyable and fruitful environment for everyone.

Cons of bootstrapping a startup 

Limited resources and limited opportunities – there’s no denying it, even though staying lean can help avoid unnecessary fluff and spending, limited resources often curb your overall product development and growth. When other competitors have significant funding, a bootstrapped startup may find it hard to keep up with innovation and marketing. With limited funds, it’s also harder to hire top talent. This can lead to missed opportunities and further curb growth.Risk of founder burnout – steering a startup is hard. Add financial strain and sole responsibility to the heap and this can lead to an even higher risk of founder burnout.Fewer network opportunities – we’ve repeatedly claimed that early-stage investors contribute much more than capital; they also come with expertise and mentorship and their network of connections to help investees get off the ground. Funded startups often attend pitching events and other high-profile industry events. Bootstrapped founders have fewer similar networking opportunities.Less overall visibility – large funding rounds attract media attention, leading to higher visibility in the industry. This leads to better brand recognition and talent attraction and can also lead to potential partnerships and further investments. Also, funded startups can invest heavily in marketing, outreach, and promotions, on a scale that bootstrapped startups simply can’t afford. Bootstrapped startups need to work much harder to build brand awareness, establish trust within their target market, and compete for customers, partnerships, and talent. 

Bonus tips: how to stay in the picture as a bootstrapped startup? 

With visibility being a key driver of business success, increasing and maintaining visibility is essential for any business’s long-term growth and sustainability. Here are a few tips on how to stay visible and relevant as a startup with limited resources. 

Content marketing – create valuable content like blog posts, whitepapers, and videos to establish your startup as the go-to expert in your field. Also, use any opportunity to participate in webinars or speak at industry events (pro tip: share what you talked about later as social media content, blog posts, and articles). Community engagement – actively engage with your audience in online and offline communities. Build relationships with industry members, share updates, respond to social media comments, and participate in relevant discussions.Customer testimonials – share positive social proof like customer testimonials, case studies, and reviews. Satisfied customers turned fans can be powerful advocates for your brand.Industry events – attending industry events and networking with peers and potential customers can contribute to word-of-mouth marketing.Strategic partnerships – establish strategic partnerships with complementary businesses to enhance your credibility, expand your reach, and share the workload.

10 tips for founders looking to bootstrap their startups

Map it out – create a detailed business plan to estimate your startup costs. This plan should cover your initial investment, ongoing expenses, and revenue projections. Startup costs vary widely depending on the industry, business model, etc. Some businesses can be started with a few thousand dollars, while others may require a more significant investment.Make sure you can afford it – evaluate your personal financial situation to determine how much you can invest in the business without jeopardizing your night’s sleep and financial stability. Focus on the minimum viable product (MVP) – the faster you get to a minimum viable product (MVP) the faster you can test your idea in real life. This helps reduce initial development costs.Operational expenses – consider your ongoing operational expenses like rent (if applicable), utilities, software subscriptions, and other day-to-day costs. Identify essential expenses required for product development, marketing, and customer acquisition.Stay lean – adopt a lean approach, minimize overhead costs, work efficiently, and prioritize essential expenses that directly contribute to your goals.Practice strict financial discipline – keep a close eye on cash flow, avoid unnecessary expenses, and make informed financial decisions. Include a contingency fund in your budget to account for unexpected expenses or changes in your business plan. When reinvesting profits, prioritize investments that directly help you scale or enhance your product or service. Explore funding alternatives – explore alternative financing options like grants to supplement your capital. Focus on value – prioritize creating a product or service that provides clear value to your target audience. Understand their needs and pain points, and validate your business idea with potential customers to make sure there’s a market demand.Iterate, iterate, iterate – embrace the iterative approach and continuously improve your product or service based on customer feedback and market trends.Build a strong online presence – establish a professional online presence through your website, social media, and content marketing. Find cost-effective ways to reach and engage with your target audience and grow your community in an authentic and useful way. 

In conclusion, bootstrapping a startup is a road of resilience, frugality, and hands-on problem-solving, but also a road of vision and authentic connections. Building something meaningful from the ground up can be extremely satisfying but also entails sacrifices, challenges, and constant adaptation. Working with what you have and focusing on the customer and the value you provide can be greatly rewarding for you, your team, and the people you serve.