Among the various ways of financing a startup is bootstrapping, an alternative that proposes to start a project with few resources. Here are some tips to keep in mind when applying this method.
Specifically, it refers to a set of techniques to develop an idea with few resources: it contemplates the financing with savings and the income generated with the own turnover. The key fact is that, when starting a startup, it allows not having to resort to external financing, such as equity investments or loans.
There are two important issues to take into account when applying this method, and they are linked to the early stage of business development. The first is that it requires lowering the short-term expectations of the venture. The tranquility of starting with one’s own business has as a counterpart that the achievement of objectives must be more step by step.
Last month I was lucky enough to attend an event in which several entrepreneurs shared our experiences about the bootstrapping concept. Undoubtedly, it was a very interesting day in which ingenuity, hard work and perseverance were the main feelings that were transmitted in the presentations of all the speakers.
Bootstrapping is a situation in which an entrepreneur starts a company with little capital. A person is bootstrapping when he/she finances his/her company from personal finances or from the turnover of the company itself.
The following graph presented by Mario López de Ávila during the event was very illustrative and represents a reflection that every entrepreneur should make before starting his venture. It represents the monthly fixed costs of the startup (including the entrepreneur’s living costs) based on the initial capital versus time. In this visual way, the entrepreneur realizes how much time he has (he has left) to generate enough to survive and avoid the death of the project.
Today’s entrepreneur has changed. Digital businesses are gaining ground on the classic physical business. Although competition has become fiercer, new technologies have also given more people the possibility of entrepreneurship.
Having a large amount of money and resources is no longer decisive. In this modern context, the concept of bootstrapping has emerged. This method of entrepreneurship will encourage many more people to make a living from their ideas.
Bootstrapping is entrepreneurship by investing one’s own resources. It is creating a business from scratch without resorting to bank financing or loans. Bootstrapping is when a startup or new company finances itself. It will start with few resources, and as it progresses, part of the profits will be reinvested to continue growing.
The two ways of carrying out this form of entrepreneurship are closely related. In fact, the two should usually complement each other at the same time. How do you finance a business without resorting to debt?
Bootstrapping is the act of starting a business or undertaking a project with little money and/or resources. You may have heard this at some point, but this is only half true. Bootstrapping is much more than that, it is a discipline, it is a mindset, it is a way of doing things. The way of thinking, the decisions that have to be taken and the way of acting go according to Bootstrapping. If you try to create the same business starting with 10.000€ or with 150€ it is clear that the decisions and actions will not be the same, but the final result has to be the same or very similar, that is where the Bootstrapping mentality comes in.
Many entrepreneurs choose this option as their first choice, not because of lack of money, but because it is a way to start a project in which everything depends on yourself and your ability to take the ideas forward. As a personal challenge where all the control of the business lies in your hands. At the beginning you will be the orchestra man, but later it will be key to stop being the orchestra man, to know how to delegate and focus on your new functions. The problem of many entrepreneurs is that they stay in that step and limit their business to themselves, with the impossibility of growing and scaling the project, which would be the same as making more money and helping more people.