After seeing headlines about companies raising millions, it’s easy for new businesses to think they need outside funding. But the truth is, bootstrapping—funding your business yourself—is a viable and successful option.
Many successful companies, like Mailchimp, GoPro, and Patagonia, started with bootstrapping. This means using your own money and reinvesting profits to grow your business.
Bootstrapping can be challenging, but it fosters financial discipline and sustainable growth. In this article, we’ll explore the pros and cons of bootstrapping and discuss how it can strengthen your business fundamentals.
We’ll also talk about using a hybrid model, where you might bootstrap initially and seek external funding later.
A Story for Inspiration!
Have you heard of Spanx? When Sara Blakely came up with Spanx, a line of slimming undergarments, she faced rejection from investors. She pitched her idea to numerous venture capitalists, who turned her down.
Undeterred, Blakely bootstrapped her business, using her savings of $5,000 to develop a prototype, file a patent, and bring her product to market. Blakely relied on creative marketing and personally sold Spanx to department stores. Eventually, Spanx gained popularity, partly due to an endorsement from Oprah Winfrey, and grew into a billion-dollar brand.
Today, Spanx is a multi-billion-dollar company, and Sara Blakely became the world’s youngest self-made female billionaire when the company reached massive success.
Why is it Called “Bootstrapped”?
The term “bootstrapped” comes from the old phrase “pulling yourself up by your bootstraps,” which refers to the idea of achieving success through one’s efforts without relying on outside help.
Source: Huffpost
The Pros of Bootstrapping Your Business
1. Sustainability and Profitability from Day One
Bootstrapping promotes sustainability from the start. Since you rely on your funds and revenue, your business must be profitable early on. This fosters long-term financial health. Entrepreneur Jason Fried, founder of Basecamp, said, “There’s nothing wrong with growing slow. Slow growth forces you to be disciplined.”
- Profitability is non-negotiable: With no safety net of external funding, bootstrapped businesses must be profitable from day one. This drives entrepreneurs to carefully consider pricing, product-market fit, and customer base.
- Built to last: Bootstrapped businesses are more resilient, focusing on steady, organic growth rather than quick scale-ups that can overstretch the business.
2. Strengthening Your Business Fundamentals
Without venture capital, bootstrapping forces you to dig into business fundamentals—operations, sales, and marketing. You must test assumptions, get to know your customers and improve your product, leading to a stronger foundation.
- Laser focus on customer value: Since you need revenue from day one, bootstrapping forces you to develop products that provide immediate value.
- Efficient operations: Running lean is key. Every expense is scrutinized, and streamlined processes contribute to sustainability.
As Sridhar Vembu, founder of Zoho, says, “Being frugal is a good idea for anyone and particularly important for entrepreneurs.”
Sridhar Vembu (Source: Business Today)
3. Full Control Over Your Business
When bootstrapping, you don’t answer to investors, allowing you to retain complete control over decisions and growth strategies. Without pressure for fast returns, you can grow at your own pace and stay true to your vision.
- No equity dilution: Retaining 100% ownership means you have full control over your company’s future.
- Flexibility and freedom: Without investor pressure for rapid growth, you can focus on long-term goals.
4. Learning Financial Discipline
Bootstrapping forces entrepreneurs to be financially disciplined from day one. With limited resources, you must run a lean business and focus on efficiency.
- Lean operations: Spending is limited to essentials like product development and customer acquisition.
- Improved resourcefulness: Entrepreneurs become resourceful, solving problems creatively without spending large sums.
Bootstrapping can teach invaluable lessons in financial discipline and growth. Entrepreneurs like Justin Welsh successfully bootstrapped their businesses, prioritizing profitability and sustainability from day one. Want to learn more about his strategy? Subscribe to Ownerpreneur for free and read a detailed breakdown!
5. Minimized Risk of Debt
Bootstrapping minimizes financial risk by avoiding loans or credit. This is crucial in the early stages when the business’s future is uncertain.
6. Organic Growth
Bootstrapped businesses grow at a natural pace, driven by revenue rather than outside funding. This leads to more sustainable growth, as businesses avoid overextending resources.
The Cons of Bootstrapping
1. Limited Capital for Growth
Bootstrapping means limited access to capital. This can slow your business’s growth and limit its potential.
- Slow scaling: Without external funding, it’s hard to scale quickly. Competitors with venture capital may outpace you.
- Missed opportunities: You may have to pass on expansion opportunities due to limited funds.
2. Increased Personal Financial Risk
Bootstrapping increases personal financial risk since you rely on personal savings. Entrepreneurs may have to forgo a salary or dip into savings, risking financial stability.
3. Lack of External Support and Mentorship
By not working with investors, you miss out on mentorship, guidance, and networking opportunities. Investors provide industry experience and connections that can accelerate growth.
4. Longer Time to Profitability
Bootstrapped businesses rely on reinvesting profits, meaning it may take longer to reach profitability compared to businesses with external funding.
5. Risk of Competition Outlasting You
Competitors with deep pockets and venture capital can outlast you by heavily investing in growth. They may dominate the market before you have a chance to expand.
When to Bootstrap and When to Seek Investment
The choice between bootstrapping and seeking investment depends on your goals, industry, and growth ambitions. Bootstrapping is ideal for entrepreneurs who want full control and can generate revenue from day one. It suits businesses that don’t require heavy upfront capital for scaling.
If your business requires significant capital for product development, marketing, or rapid scaling—particularly in competitive industries like tech—seeking investment may be better.
It also depends on your personality. If you prefer slow, steady growth and methodical business building, bootstrapping is for you.
| Entrepreneur | Company | Story | Bootstrapped or Invested? |
|---|---|---|---|
| Sara Blakely | Spanx | Bootstrapped Spanx with $5,000 and built it into a billion-dollar company after being rejected by investors. | Bootstrapped |
| Sridhar Vembu | Zoho | Bootstrapped Zoho from 1996, growing it into a global SaaS company without external funding. | Bootstrapped |
| Ben Chestnut & Dan Kurzius | Mailchimp | Mailchimp was bootstrapped by its founders and grew into a $12 billion business before being acquired by Intuit. | Bootstrapped |
| Yvon Chouinard | Patagonia | Yvon Chouinard bootstrapped Patagonia, growing it into a global leader in outdoor apparel while maintaining independence. | Bootstrapped |
| Brian Chesky, Joe Gebbia, and Nathan Blecharczyk | Airbnb | Airbnb’s founders entered Y Combinator and took investment from Paul Graham, later securing VC funding to scale globally. | Invested |
| Mark Zuckerberg | Mark Zuckerberg took early investments from Peter Thiel and venture capital firms, fueling Facebook’s rapid global growth. | Invested | |
| Evan Spiegel | Snapchat | Evan Spiegel raised venture capital early on, scaling Snapchat with investments from Benchmark and Lightspeed Venture Partners. | Invested |
A Hybrid Approach: Mixing Bootstrapping with External Funding
Many businesses start with bootstrapping and later seek external funding to scale. This approach allows you to build a solid foundation before accessing more capital.
In 2011, GoPro received $88 million in venture capital funding from firms like Riverwood Capital and Steamboat Ventures.
Conclusion: Is Bootstrapping Right for You?
Bootstrapping offers a sustainable way to build your business, emphasizing profitability from day one and promoting financial discipline. It fosters creativity, pushes you to strengthen your business fundamentals, and allows you to retain full control.
However, it comes with significant risks, including limited access to capital, personal financial exposure, and the threat of competition outlasting you.
A hybrid approach might provide the best of both worlds for those who eventually need external support.
Ultimately, the choice depends on your risk tolerance, growth ambitions, and business model.
Just look at Mailbrew, a company that bootstrapped its way to success by reinvesting profits to grow steadily. For in-depth case studies on how businesses like Mailbrew thrived without external funding, join Ownerpreneur today!