Bootstrapping: Advantages and Disadvantages (Know what you’re in for!)

(Reading time: 4 – 7 minutes)

This is the first in a three-part series. In this series I want to briefly explain what bootstrapping, outsourcing and partnering are and what they can mean for your new business. I’ll also touch on the advantages and disadvantages of each.

What is bootstrapping?

Bootstrapping is starting a business on a small scale on your own for the absolute minimum of cost. There are no venture capitalists or investors investing money in your business at this stage. You don’t have business partners at this stage either. It’s just your time, your money and your effort. When bootstrapping, you delay spending money on “normal” business costs such as renting office space, fancy signage, employees, etc until after you start making money.

How to Bootstrap

The rules of bootstrapping are simple in theory, and not much more difficult in practice. Here’s the top five rules you need to know before you start.

1. Use your own money

Bootstrapping requires you to use your own money to start a business. This is not a bad thing because you are looking to start out small and keep costs to an absolute minimum. You should be very careful what you spend your money on, which brings me to my next point.

2. Keep costs to a minimum

When starting a new business, it’s tempting to go all out and rent a nice office, hire a secretary and have a professional marketing agency plan and conduct your marketing. After all, isn’t that what the big successful companies do? Yes, but you’ve got to remember they can afford to do that because they’re already big and successful. You’re not at that stage yet.

Brian Armstrong in his excellent article “46 Ways To Start A Business With No Money”, shows you how you can keep costs down to an absolute minimum and even how to get a lot of things for your business for free or next to nothing. He covers things ranging from finding free or low cost legal services and using free web hosts to creating your own logo and downloading free name cards.

3. Do as much as you can by yourself

Yes, this will most likely lead to long hours in the beginning, but it is a fundamental of bootstrapping. You don’t need to rent an office, hire marketing agencies, or employ a secretary in the beginning. Instead you can work from home by turning a spare room or even just a spare desk into your workspace.

Use social media to get your business or product’s name out there. However, don’t become a spammer and just plug your product. Write a relevant blog post, which gives useful advice or helps people solve their problems as well as providing links to interesting blogs posts. Put links to articles on social media platforms such as Twitter and Facebook. Respond to customer queries by personally answering calls and responding to your own emails.

4. If your business fails, get out quickly and try something else

The mantra is fail fast. Knowing when a business is failed is the hard part. Establish a target and a timeline as a cutoff. Make the target, business is viable, otherwise, it’s failed and time to move on to something else.

5. Put cash flow ahead of profit

In the beginning, you°Øll need to take what money you earn from sales and invest most or all of it back into the business to grow it. This can be difficult, especially if you have no other income. You have to think of ways to use the money from early sales to increase sales and profit in the future.

Advantages of bootstrapping

1. You have all the control

The great thing with bootstrapping is that you don’t have to compromise with business partners. You can organize and get things started quicker. You don’t have to sign a contract with business partners or investors at this stage.

2. You keep all the profits

What’s cool about running a business by yourself and bootstrapping is that you don’t have to split the profit with anyone else. You also decide how much to take for yourself and how much to reinvest back into your business. It’s all yours, baby!

3. You’ll learn to become more versatile and resourceful

You’ll find that you probably have to pick up new skills to run your new business. For example, if you start up an online business, you’ll need to learn some web design and management skills; you may also need to learn some basic accounting so you can keep an eye on cash flow and profit. You’d also benefit from learning some online marketing techniques to get your product out there in front of the Internet’s multitudes. Learning these skills reduces expenses and increases your overall skill set.

Disadvantages of bootstrapping

1. Long, long hours

You’ll have to work longer than normal hours while bootstrapping. This will be compounded by choosing to be employed by another business until your new business starts making money.

2. All costs and losses are yours

Remember, what money you have, you probably worked for. You are risking losing that money temporarily or even permanently by going it alone and bootstrapping. You’ll need to be smart enough to assess risk as accurately as possible.

3. All problems have to be solved by you

When bootstrapping, you don’t have a committed team working with you to help brainstorm new ideas and solutions to problems. While you can ask friends and other professionals for advice when they are available, it’s not always convenient to do so. Bootstrapping may limit results that a creative team or partnership can achieve.

I hope this post has given you some idea of what bootstrapping is along with its advantages and disadvantages. Stay tuned for the rest of the series: Part II Outsourcing and Part III Partnering.

I’d love for you to share your own experiences of bootstrapping below in the comments section. Thank you.

Max Bronson lives in Auckland, New Zealand and is fluent in Mandarin. He lived in Tianjin, China for 7 years teaching English. It was in China that he discovered his passion for entrepreneurship. He also enjoys writing about personal development at Personal Development X.