Bootstrapping is a term used in so many areas to refer to different meanings, even in computer science and programming, but when this word is related to entrepreneurship its meaning is really interesting, and that is our goal with this post, show you what is it, and how you can use it properly, in favor to your business idea. Let's learn!
Bootstrapping is a kind of self-starting process which you made without external input.
When you load the basic software into the memory of a computer after resetting it and it runs when the machine starts, we are in presence of the base concept of this term. But as we said in the beginning, this word is used for many many purposes, and entrepreneurship is one of them.
An Entrepreneur, is bootstrapping when it is starting its business with little capital, to be more specific, with his or her own resources. Is the way in which you or any entrepreneur start a business without any external aid or capital.
This method also is called “bootstrap financing” because it is more related to funding, although it also refers to all the resources you will implement to start your business successfully with any outside help.
Is basically stars your business on your own.
1. Credit cards
If there is a way to get economic resources without any intermediary is with credit cards.
Even though a bank is behind it, this amount of money is available for you without any extra procedure or step.
Some experts on entrepreneurship thinks that this method is not the best because for starting a business is necessary much more money than usually a credit card can bring, and you would obtain a direct debit without being sure of being able to cover it later in case it does not go as you expect with the business.
But let's be positive. You will do well. Focus on doing things right, and if you don't have the ideal financial opening, credit cards can help you a little for sure.
2. Trade credits
Anything that is credit is good news for any business that is starting.
In this specific type of credit, a supplier gives you a credit to pay for anything he or she has provided for you.
In this way, you will be paying with your own resources to the extent of your possibilities. It looks like a lender, but it is not. It is a form of bootstrapping a business when there are not enough resources.
This kind of credit is not very common for new entrepreneurs or in the first time, but if you are persuasive enough you can't make it.
This bootstrap method consists of selling your accounts receivables to a buyer as a way to raise capital for starting your business.
A company or a person called factor buy accounts receivable with a discount rate. The factor who buy the receivables, and he or she assume the work of collecting the money or paying in your name, but in exchange for a determined benefit.
Thanks to this method you can reduce your cost and also, make payment commitments than others will give it continuity.
This is maybe one of the most well-known methods to bootstrap a business. It is not the same pay for something new, we mean, buy it, that leasing it for a lower price.
This alternative exists since too many years ago and nowadays continue working well for entrepreneurs.
We say lender as a general word, but it can not be a bank or a venture capital on angel investor firms.
When we talk about Lender as a bootstrapping method, we are referring to a person close to you and with which you do not need major procedures to obtain credits or financing. At least the minimum necessary resources.
Another good option to bootstrap your business idea is reinvesting profits on its own growth once you had gotten the return on investment (ROI). But this only work when the cost of bootstrapping is not higher than the ROI.
Some examples of basic necessities to a startup or a small business are the next items:
A. Idea validation efforts that you can make by yourself, but you will need tools, money, time, and many things to achieve this step that will define the success of your idea and final business. B. A website is more than required. If a business is not on the web you could say it doesn't exist, at least for most people in the world. Here, you also will need necessarily resources for starting. C. The image of your brand also is a need. This will give your brand personality and the desired appearance online and offline too. This effort is so important too.
When we said that entrepreneurs were the investors, we didn't mean that it had to be just one. The truth is, no, if you don't have the necessary resources, you could add a co-founder who shares your vision and supports you with what you need to start the business with his or her own efforts.
This tip is related to the return of investment. If you reach a good first customer with its first payment you will be able to pay the bills in the beginning and if the relationship is set in a good way, you would get a long-term success. So, focus on this first client.
In the next video, you probably will find other tips for bootstrapping your business.
An example of a business started with bootstrap is Tough Mudder. This business was co-founded by Will Dean and Guy Livingstone in 2010 with $8,300. The boot-camp-style race features challenging obstacles and tapped into a market of athletic competitions. They spent $300 on a website and $8,000 on Facebook ads, and proved successful when more than 5,000 people participated in the first Tough Mudder. The company made more than $100 million in revenue through registration fees and sponsorship deals, and more than two million people have run the company's races in 10 countries since its founding eight years ago. It is a really successful example of this method.
Well, there are many reasons that make this method good for you. For example, you will learn to spend with discipline and take control of your expenses not only because it's about your money, but also because the success or failure of the business you're starting will depend on it.
You will be focused on the clients, only clients, rather than looking for investors or other funding methods that consume more time and effort.
When bootstrapping you can forget the work of divide the profit or ownership between investors without mentioning that you will not have to look for investment. You save time, energies, and work.
But we have to be honest with you. All risks will increase and in the same way, you will have to work with greater limitations than when you have external investors.
But keep calm and bootstrap your business. Everyone can do it. To spend more time learning about this interesting topic we want to invite to invite you to a Meetup we will make about it. There will be experienced, more information, more knowledge and a community that is in the same process as you. Here you can sign up. We look forward to seeing you.