Very simply, “bootstrapping” is starting a business with limited capital or resources and growing from revenues received with little to no outside capital. Sounds pretty easy right? It is to a certain extent and the term means many different things to different industries.
In technology, if you are a software company based on code written by yourself and a couple of others it can be done easily. In theory you are using resources such as your time, computers you already have, and the electricity you are already paying for.
Let’s examine a hypothetical startup in the website and/or app space and see how far this bootstrapping thing can go.
- You have a computer, a steady source for your main income (ie: a real job), and experience creating software.
- This part is easy on the pocketbook, as long as your time is valued as $0.
- After you create the wonderful website or app that you are sure the world is ready for and will adopt quickly, you need to let people know about it.
- This is where social media is certainly your friend. Through your social media “friends” you can gain some traction among like-minded users. Wow, you haven’t spend a dime yet!
- At this point you are on top of the world. Everyone loves your product and can’t wait to use it.
- You’ve only spent perhaps $50 total to acquire a domain, grab some cheap hosting, and worked yourself for free.
Things are looking up!
Now you are noticing that, because so many people love your creation, you are starting to think the cheap hosting just isn’t going to cut it. Plus, your buddy who helped out is really excited and is pushing you to make this thing a “real company” and get some outside funding, which we will talk about in depth later on.
You have some decisions to make now because you aren’t charging for your product and you have no advertising – you think making money off this thing is a bad idea in the short-term and will turn off your early adopters. Okay, so who’s gonna pay for hosting? You realize you need a cloud based solution and grimace as you view the potential pricing schedules. You think, “that’s okay, we don’t need to have any revenues right now because we are going to be millionaires once this thing is funded by a seed or venture capital round.”
- You decide to hit up your parents for some cash to help you see how this thing plays out and get some bandwidth for your traffic.
- This isn’t a bad idea and can be thought of as bootstrapping because they are willing, see giving you money as an investment in their son/daughter, and really don’t need to be paid back unless you get really, really rich.
- Plus, your parents love you and aren’t going to be hounding you like some Angel investor or seed company might. Win-win here!
- Next, you form a company, grab some VC funding, and lose a huge part of your ownership stake. This is cool with you because on paper your company is valued at $10 million now, four months in.
It goes one of two or three ways from here.
- You become the next Facebook, Uber, Airbnb, or whatever hot new thing is out there and are hanging out with tech heavyweights sipping nice drinks downtown.
- Because you have no idea how to actually run a business, you soon find your investors nagging you to get a real CEO and find something else to do with yourself.
- Or, perhaps not taking that seed and venture capital money would have been the best decision. Sure, you would have had to “bootstrap the hell out of the thing” – but at least you would still own and control it.
We will examine certain aspects of all of the above situations and alternative scenarios in-depth in the upcoming parts of this series.