How to bootstrap your small business

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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.

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.

• Angel investors

  Angel investors are wealthy individuals or groups willing to provide the funds to help you start or grow your business. This money is an investment: Instead of having to repay it, you give angel investors an ownership stake in your business.

• Small business loans

  Small business loans come from a variety of sources like banks, online lenders and Community Development Financial Institutions (CDFIs). Repayment terms vary depending on the type of loan and the lender but can be anywhere from six months to 25 years. You’ll also have to pay interest, which could make this an expensive alternative depending on factors like your credit score and how long it takes to repay the loan.

• Business grants

  Small business grants give business owners the capital they need without having to lose equity or pay back funds. Business grants are typically provided by corporations and nonprofit organizations.

• Business credit cards

  The best business credit cards are usually reserved for people with good-to-excellent credit scores. On top of having access to revolving credit, business credit cards come with additional features. These may include cash back and travel rewards on spending, discounts on select business purchases and free employee cards. You can also build business credit and even avoid interest charges if you consistently pay your balance in full.
  

• Personal loans

  As long as the lender allows you to use loans for business purposes, a personal loan is another solid option to help you start or grow your business. Just make sure you look into both personal and business loans before making a decision. Some types of business loans, like SBA loans, offer high loan amounts, low interest rates and longer repayment periods. And some business loans are designed for startup businesses and business owners with bad credit.
  

• Venture capital

  Venture capital is short-term funding that is typically used to build the needed infrastructure to grow your business. Unlike angel investors, venture capitalists don’t use their own money to invest in your business. Instead, they manage funds pooled together from a group of investors. Venture capitalists usually have a more vocal role in the decision-making process compared to angel investors.
  

• Crowdfunding

  Crowdfunding allows entrepreneurs to raise funds from a large number of people online. It involves setting a target, promoting the project and offering incentives in exchange for their contributions. There are several types of crowdfunding. You can receive funds in the form of a donation, loan or investment.
  

• Peer-to-peer lending

  Peer-to-peer lending is similar to crowdfunding. You raise money from groups of investors through a marketplace. The main difference is that funds are always a loan that has to be repaid.
  

• Pitch competitions

  Pitch competitions allow business owners to quickly showcase their business to potential investors. Even if you don’t win, participating in a pitch competition could be a great opportunity. It gives you the chance to present your business idea to an audience, network with other entrepreneurs and industry leaders and come away with valuable feedback.
  

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

• What is bootstrapping a small business?

  Bootstrapping refers to starting a company with limited capital, either through personal finances or the operating revenues of the new company.

• What are the stages of bootstrapping?

  The bootstrapping process of a company can be divided into several stages. In the beginner stage, you self-fund your business. The customer-funded stage uses revenue from customers to support and grow your business. And the credit stage uses loans or venture capital to take your business to the next level.

• What are the advantages and disadvantages of bootstrapping?

  Bootstrapping a small business eliminates the need to impress investors for funding and can limit the amount of debt you have to take on. 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.