What is bootstrapping in business?

For some, bootstrapping is a hard concept to understand when starting a business. It means you begin with very few resources and use ingenuity to stretch what you do have. It also means investing in your own business without getting money from outside sources, or only getting as little as possible. Figuring out how to bootstrap isn’t for everyone, even when you have a great idea for a startup company. If you can create a solid business plan based on bootstrapping and have the energy and resourcefulness to pull it off, it can be a smart way to begin.

What defines a bootstrap startup?

Bootstrapping is when you start your business without any external source of investment, usually with a small budget you cobbled together yourself. Bootstrapping is an interesting concept for startups because a lot of people think you simply can’t start a successful startup without a six-figure budget. In fact, bootstrapping, though difficult, has distinct advantages that you should consider when you’re creating a startup.

Bootstrapping: Where do you start?

How do you start bootstrapping? Well, a good sense of business finance is key. When you’re bootstrapping, the idea is to stretch every resource as far as possible. That means money, of course, but other resources, too. Use what you already have instead of buying something new. Rent or borrow, even from your own house, to get your office space in shape. Every cent you spend should always be accounted for, even if you’re not bootstrapping. But when you are bootstrapping, you need to really think about why you’re using those cents the way you are.

Your aim is to borrow as little money as possible for your business. That way, you don’t give up as much equity to investors, and you don’t owe as much interest to lenders.

Start making cash fast

When your resources are limited, your business model needs to focus on making money quickly. Whether you use letters of credit from buyers as insurance for suppliers or extend your trade credit as much as possible, do whatever you can to increase your cash flow.

Factor this in when writing your business plan, before you put things in motion. If you can’t figure out a way to release a product or service pretty quickly, then bootstrapping might not work for you. After all, with no investment and only limited capital, you don’t have a lot of resources to fall back on. You’ve got to start replacing what you use fast, or you’ll use up what you had. Bootstrapping stretches your resources, but it doesn’t generate new ones. That’s what your business itself has to do.

Find a cofounder

Bootstrapping on your own can be exhausting. Plus, you might not have all the skills or connections you need to get it done. That’s why you and your cofounder need to compliment each other. If one of you comes up with the grand ideas, the other needs to be able to sell them. When one cofounder is great at making vendor and supplier connections, the other one needs to be equally talented at finding great employees.

Before you agree to do any work together, you need to be on the same page about bootstrapping. Sit down and look over the business plan. Really listen to each other, both about the things you see working and the things you see failing. One of you might catch a mistake or an improbability the other missed.

Learn new things and DIY

One major piece of advice for startups is to outsource certain tasks because it makes life easier and gives CEOs the chance to focus on other things. But when you’re bootstrapping, you should follow the opposite advice. You simply don’t have the capital to outsource aspects of your business, so don’t do it.

Instead, learn the skills yourself. Do you need a logo? YouTube features tons of InDesign tutorials that will help you create something fabulous. Lots of software is available for a free 30-day trial, which is sometimes all you need to get a few tasks done yourself. Use resources like Codecademy to teach yourself coding, so you can build your own website. SEO and content marketing resources are abundant on the internet. If you plan to offer a service like cleaning to customers, just do it yourself until you make enough capital and have enough appointments booked to actually hire cleaners.

Promise equity, not money

You won’t need many employees when you’re bootstrapping your startup, but sometimes, the need is unavoidable. You may reach a point when you simply can’t produce the volume of product you need to make money, in which case hiring someone part-time might be the only way to go forward. Check your funds, time, and resources hard before making this decision.

Bootstrapping startups don’t have the resources to pay competitive salaries. When you’re hiring employees, risk is part of the package, so don’t downplay what your startup is doing. Instead, offer them significant equity to make up for the lack of competitive pay. Employees who have a stake in the company, like equity, will work hard to make it succeed. They lose the possibility for a big payout if the company fails, which intertwines their success with the startup’s success.

Work remote

When you only have a few employees, remote work is the way to go. Use free chatting and video calling services like Skype to communicate when you need meetings. Office space is an expense that you don’t need until you have actual customers. Most of your first employees will be doing jobs that they can accomplish on a computer or with a telephone, anyway. Things like website building and social media outreach are perfect telecommuting positions.

Create a business bank account

This bootstrap startup probably has a significant portion of your own money funding it. That’s fine, but you should keep that money in a separate bank account. As soon as you start your business, it needs its own bank account. Move the personal funds you’ll be investing in your business to that account. Don’t dip into your own funds to pay for business stuff, because that gets messy and confusing very quickly.

A business bank account helps you keep track of exactly how much your business is spending and making. It also makes things simpler when tax season rolls around. When funds don’t line up, you have a dedicated place to look instead of sifting through your personal bank statements.

Watch this bank account very closely. Constantly evaluate each expense, because new opportunities may come up that allow you to save more money. As your business evolves, so will your business expenses. Don’t spend even a dollar on an unnecessary expense. Small savings over the weeks add up fast, and you never know when even a few extra hundred dollars of capital will come in handy.

Make personal connections

Bootstrap startups are not the most reliable business sources, which is why you might have a hard time getting vendors and suppliers to take your account. You’ve got to use your charisma and business sense to win these people over. First, get a personal contact at the company with whom you can communicate. Changing people all the time never gives you the chance to make a personal connection, which is necessary when convincing someone to believe enough in your business to become your vendor.

Once you have the personal connections, show them your business plan, letters from buyers, and other proof that your company is worth working with. You might need to negotiate a price that works for you, so this kind of information comes in handy. If that vendor simply won’t take your business, move to the next one. You must keep looking until you find a way to get the resources you need. Otherwise, you can’t move forward with your business.

When you bootstrap, you also show possible investors down the line that you truly believe in your own company. You show the ability to generate revenue with few resources, and that you’re someone who can do what it takes to succeed. This is not an easy journey for any startup CEO, but sometimes it is the only way to begin the company of your dreams.

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