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The Joys and Risks of Bootstrapping

With “lean and mean” becoming a startup mantra, the idea of bootstrapping has become sexy because it talks to the ability to build something from scratch while maintaining your freedom and independence.

The ability to bootstrap has become more possible as the costs to nurture develop and market a product have declined. What may have cost $100,000 in 2000 can now be done for $10,000. It has let entrepreneurs start and build startups without having to dig too deep into their pockets, or tap investors for capital.

Not surprisingly, bootstrapping is widely celebrated because we love stories about how the underdog is able to prevail against bigger and better financed rivals.

The question is whether we’ve become too enamoured with bootstrapping. In a recent TechCrunch post, Ashkan Karbasfrooshan, CEO with WatchMojo, argues the disadvantages of bootstrapping outweigh the advantages.

He suggests that without capital, startups lack the ability and flexibility to grow as effectively as possible or pivot when required. Karbasfrooshan argues there’s a delicate balancing act between the independence of bootstrapping and having capital to grow.

The challenge for many entrepreneurs who have embraced bootstrapping is not falling too much in love with it and, as important, recognize when the time is right to seek growth capital. As much as raising money means giving up equity, it also provides the fuel needed to grow. For entrepreneurs, they take a smaller stake and the demands of investors but they’re able to hit the accelerator.

So when should entrepreneurs stop bootstrapping their startups. While it’s not a science, it likely presents itself when an entrepreneur  recognizes their efforts are being spread too thin and, as a result, they can’t spend enough time on the most important tasks.

Raising capital also takes financial and mental pressure off an entrepreneur who doesn’t have a lot of breathing room given every dollar counts so much.

The bottom line is bootstrapping has become a more viable model because it lets entrepreneur build a business, even large ones. At the same time, it is important to realize bootstrapping isn’t the be all and end all.

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  • http://www.GiftOasis.com Ron Clabo

    Mark, thanks for a great article. One of the questions you raise is “So when should entrepreneurs stop bootstrapping their startups?” I have to say, I ponder this question often. I’m currently bootstrapping our venture, but at times wonder if it’s the best approach.

    One factor that weights heavy in my decision process is whether time to market is truly important for the success of our venture. There is no doubt that raising money allows a venture to get to market faster than bootstrapping. So for those ventures where time to market may play a critical roll on the outcome of the startup, raising money is probably the thing to do, and sooner is better than later. But I think we entrepreneurs often think time to market is more important than it really is.

    My philosophy is this: if getting to market FAST isn’t going to make a huge difference on the outcome of the venture, than bootstrap the thing as long as possible.