As an entrepreneur, you want to control the direction of your life and business take – that is one reason you became an entrepreneur in the first place. However, the reality of the need for investors soon kicks in as businesses often need more cash injection than we anticipated. You will need to carefully manage your much-needed resources so you can have a positive cash position that allows you to run your business. The main reasons entrepreneurs bootstrap is either:
⦁ to maintain control of the company or
⦁ simply because there are no investors knocking on their door and they have to prove their concept.
Bootstrapping is stretching your resources so that you can achieve more and avoid the need to seek outside investors or loans. It will result in organic growth which is slower than having the fast growth that can be achieved with a good cash injection. When well managed, research shows that you are likely to get to profitability faster than a business that has an excess of funds – the mind-set requires that you carefully monitor and cut cost which is one way of increasing cash flow. Bootstrapping is not limited to start-up businesses and is probably, even more, important for growing businesses. The following are key advantages of bootstrapping your business:
⦁ Positive cash flow: Bootstrapping assures the business of positive cash flow. This means there is less money borrowed and, as a result, less money spent on interest rates and fees:
⦁ Control of your company: You maintain control of your company
⦁ Ability to draw funds: When your business becomes profitable you can draw funds which may not be possible if you bring in partners.
⦁ Improved customer service and operations: Decisions on bootstrapping are based on the customer’s’ need and process in meeting the need as opposed to the balance sheet and how you can pay off investors.
⦁ Focus on making money: The only way to have money when you are not financed is to make it. Bootstrapping forces you to meet your customer’s needs in an exceptional way as it is the only to make money.
⦁ Focus on your strategy and business model: Having investors can derail your thinking and force you to try strategies without applying them through to the end. If you are in an untested space, you cannot justify sticking to your strategy and are more susceptible to try out the suggestions of others. Bootstrapping allows you to keep away from all the noise
⦁ Grow yourself as a person: You have got to be mentally tough to handle the stress associated with bootstrapping.
⦁ Innovation: Bootstrapping is the mother of innovation as it forces you to think creatively around your operations.
It is important to note that bootstrapping does not necessarily cut the overall cost of something e.g. equipment but ensures that cash outflow is managed so that you have a positive cash flow that is required for daily operations.
b. Disadvantages Of Bootstrapping
⦁ If you bootstrap your business to tightly you may not be able to take advantage of better opportunities that come along
⦁ You are always owing money – if you do not have the stomach for it this can be stressful
⦁ You miss out on the advice and direction experienced investors bring
⦁ Loss of opportunity for rapid growth that comes with investors
⦁ Organic growth tends to be slow meaning, target milestone may not be achieved as fast as you thought they would and competitors may take up the opportunities you cannot because of lack of funds.
⦁ Credibility: Your credibility can be hurt if you do not get an investor on board. The assumption is that if the business is feasible, then some big investors should back it up.
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