How to bootstrap your small business
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Key takeaways
- Bootstrapping a small business involves using personal savings and revenue from customers to sustain and grow the business
- Creating a well-written business plan is an important step to bootstrapping your small business
- There are plenty of alternatives to bootstrapping, including investors, small business loans, business grants and business credit cards
When you’re ready to launch a startup business, you’ll need to decide how to pay for starting and running it. Bootstrapping may be a viable option if you can’t or don’t want to secure financing through investors or small business loans.
While it can be time-consuming, bootstrapping offers the advantage of retaining complete control of the company and minimizing the amount of debt you take on. Here’s how to bootstrap your small business and possible alternatives if it’s not the right strategy for your business.
What is bootstrapping?
Bootstrapping refers to starting a company with limited capital, either through personal finances or the operating revenues of the company. On the positive side, it allows business owners to start their business while retaining complete control over the company and avoid giving up equity to investors, which can dilute ownership and pose challenges for future investments. But it can require a lot of time and effort, and you may need to work another job while you get your business off the ground.
Stages of bootstrapping
The process of bootstrapping your small business can be divided into three stages: beginner stage, customer-funded stage and credit stage.
| Beginner stage | You use your own savings or money from friends and family to start the business. Owners in this stage typically will continue working at their main job. |
| Customer-funded stage | You rely on revenue from customers to support the operations and growth of your business. |
| Credit stage | You take on loans or venture capital to finance specific goals, such as expansion, hiring employees or upgrading equipment. |
How to bootstrap your small business
1. Continue with your current job
Maintaining a stable income can ease some of the stress of bootstrapping, as some businesses may take years to become profitable. You may want to keep a full-time job and work on your startup in your free time. Or you may want to focus on your new business while holding down one or more side hustles to help fund your venture.
2. Decide on your core objectives
At each stage of the bootstrapping process, you’ll need to have key objectives to focus on. These are short-term, measurable steps you take to achieve your long-term goals. For example, during the beginner stage, you may have to focus on identifying the main customer pain points you want to solve to help you create your product. Or during the credit stage, you may want to secure a $100,000 small business loan or business line of credit to help expand your business. Having core objectives will help you prioritize your resources and measure your success going forward.
3. Create a comprehensive business plan
A well-written business plan will help outline your vision and goals. It should clearly define your company’s objectives and strategies and address how you will finance your operations and what resources you will need to succeed. Your business plan will also likely be necessary later on if you decide to apply for a small business loan or look to attract investors.
There are resources available to help if you don’t know how to write a business plan. Mentors from SCORE can help you craft a plan, while the SBA assists with creating or modifying a business plan. It’s also recommended to collaborate with local SBA resource partners like Small Business Development Centers or Veterans Business Outreach Centers.
4. Start with a basic version of your product or service
When you’re launching a startup business, you may want to include all of your desired features in a product or service. But with limited resources, startup business owners typically begin with a minimum viable product (MVP). This is a stripped-down version that focuses on a few core features that address your customers’ issues. This gives you a chance to gauge customer interest while conserving resources.
5. Focus on the most important metrics
You’ll need to track a variety of metrics such as sales, your website’s performance and the number of customers you have. But focusing on all of them may be distracting and inefficient. Choose the metrics that are truly significant for your business and make data-driven decisions. For example, if you’re running an e-commerce store with a low profit margin, you can adjust your pricing to increase your profit and keep your business afloat.
6. Delegate tasks effectively
As a small business owner, you can’t do everything yourself, so you need to delegate tasks. That could mean asking friends and family for help, hiring employees or outsourcing tasks to freelancers. Effectively delegating is key to maximizing your productivity and getting the most out of yourself and everyone helping you get your business up and running.
Pros and cons of bootstrapping
Bootstrapping a small business has both advantages and disadvantages.
Pros of bootstrapping
- Ownership: Bootstrapping allows you to keep complete control at the start of your business and eliminates the need for investor financing.
- Full decision-making powers: When you bootstrap your business, you don’t have to justify your decisions to investors. This can be helpful if you need to adjust your strategy.
- Low debt: If you don’t use outside sources of financing during the early stages of bootstrapping, you can avoid many of the pitfalls of taking on debt, such as defaulting, lower credit scores and negative marks on your credit report.
Cons of bootstrapping
- Limited funds: If you don’t have enough of your own funds to start a business, bootstrapping might not be the best option for you.
- Time consuming: Bootstrapping may mean keeping a full-time job or multiple side hustles while working on starting a new business.
- Slower growth: With limited finances, you’ll have to be careful where you invest your time and money. This can delay your plans for starting or expanding your business.
- Financial risks: Devoting your own finances to a startup venture may mean you don’t have a way to cover emergencies and cash shortages. You could also lose the money you put into your startup.
Alternatives to bootstrapping
Self-funding your business may not be the best move for you. Here’s a look at some of the top alternatives to bootstrapping.
The bottom line
Bootstrapping your small business has advantages and disadvantages. It allows for greater focus and eliminates the need to secure funding from investors. It also makes it easier to pivot the business without external pressures. But it can be time-consuming and may require the entrepreneur to work another job while getting the business off the ground. If you’re considering bootstrapping your business, take the time to research and understand the advantages and disadvantages before you get started.
Frequently asked questions
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