Unsure about approaching investors for startup funding? It’s time to consider bootstrapping. These are the pros and cons of bootstrap startup ventures.
As an entrepreneur, you have a Business goal so big that perhaps the horizon can’t even handle it. So, how exactly do you plan to bring that business dream fruition? You’ve got two options: Create a venture capitalist-backed Startup or a Bootstrap Startup.
Acquiring outside funding that can help with scaling up a new business can feel like the Holy Grail of entrepreneurship. But then again, the likes of venture capitalists and angel investors aren’t always the angels you expected them to be — and that can make for a hellacious ride as an entrepreneur.
That’s why bootstrapping is so appealing to many: You can essentially pull your own business up by your own bootstraps, if you will. Still not sure if it’s right the move? We’ve compiled a guide on the pros and cons of bootstrap startup ventures.
Let’s get started!
What Is a Bootstrap Startup?
With a bootstrap startup, you’re essentially creating your business with no or little money from the outside. Instead, you use your own bucks or your revenue from customer sales that you reinvest into your venture.
Fewer startup companies are acquiring funding from venture capitalists today, so bootstrapping is becoming increasingly common.
Let’s go over the pros and cons of the bootstrapping process.
Pro: You’re in Charge
You got into business to be the man or woman in charge of your work. You just can’t do that with a traditional W-2 job — also known as a “wage slave” job.
So, why would you want to depend on venture capitalists or angel investors who will essentially end up running your business for you? To many entrepreneurs, it seems counterintuitive.
So, how do venture capitalists and angel investors become your new “bosses”?
They essentially have a major say in what goes on with your business and have certain interests and goals related to funding your venture. As a result, they’ll place parameters on the way you conduct your business.
This can spell big problems if their views and your interests are not compatible.
In fact, you’ll also need to create an official board of directors, the members of whom will have to approve all of your strategic pivots and decisions. Your funding providers will expect a seat on this board and demand a monthly report covering key items.
In other words, if you’ve got bad news about your venture, you really can’t keep it a secret.
In light of all of this, the freedom to be yourself and to answer to nobody but yourself is sometimes worth not receiving outside funding.
Pro: You’re Responsible
Without a venture capitalist or angel investor breathing down your neck, you are solely responsible for your company, as you are its sole investor.
And that is a huge benefit.
Because it’s human nature for people to place their entire hearts into something over which they have total ownership. When your name is written on it, and when it’s your own bottom line on the line, you suddenly feel more motivated to be successful at any cost compared with if you’re working on someone else’s business dream or using other people’s money.
Pro: You Choose Your Startup’s Direction
When you’re in the driver seat of your business, you naturally dictate your company’s direction.
You can’t always do this when you receive someone else’s funding.
Thus, with a bootstrap startup, you can simply concentrate on being successful in the direction in which you’re going — full speed ahead — instead of having to fight off the influences of investors who think you should be taking your company in a different direction.
Con: You’re Taking a Financial Risk
Of course, with every pro comes a con. And one of the biggest cons of having a bootstrap startup is that you run the risk of losing all of the money you put into your business.
Your business’s success is dependent on only one person: you.
In other words, it’s sink or swim.
So, if you make profits, that’s wonderful. But if you can’t get into the black, you just may lose it all.
Also, many owners of startups decide not to take salaries during their beginning months. Are you prepared to go months without income?
Before you begin a bootstrap startup, it’s imperative that you have a financial plan in place so you don’t end up drowning in money issues.
Con: Growth May be Slow
Another challenge you face with a bootstrap startup is that you can grow only as fast as your little pot of money and your skeleton crew will let you.
As a result, your growth may be slow going.
So, if you’re not naturally a patient person, you’ll most definitely get a lesson in it.
Sure, you can start to invest money that flows into your business over time, but it all takes time. Just prepare to make adjustments to your overall business projections along the way.
Con: Networking May be Harder
A major benefit of using angel investors or venture capitalists is that they are typically connected well.
After all, who you know is generally more important than what you know.
Unfortunately, if you have a bootstrap startup, you might lose invaluable networking opportunities. The right partnership opportunity may open up a brand-new market for you and boost your visibility in ways you can’t achieve on your own.
Plus, investors usually have plenty of helpful support and advice to share with you. And sometimes the wisdom of an expert is more valuable than gold.
How I Can Help Your Startup
I offer the guidance you need to create your startup venture and place your products in consumers’ hands. I have a wealth of experience spanning several years that will help you to set up your business successfully.
Have questions about hiring, marketing your offering, drafting a contract or incorporating? I’ve helped with all of these issues.
Contact me to find out more about how I can help you to start your business, grow it and enjoy the profits — the sweet fruits of your labor — in the years to come.
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