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Bootstrapping and How it Works in Business

We’ve all heard rags-to-riches stories about entrepreneurs starting a multimedia corporation from their garage or backyard. It’s often said that these tenacious business owners have pulled themselves by the bootstraps to find success. But what is bootstrapping in business, where does this phrase come from, and how can you apply this idea to your own startup?

What is bootstrapping in business?

Bootstrapping means building your startup company from the ground up without venture capital or other outside resources. The business owner uses their own personal savings to get the company off the ground, reinvesting the money received from its first round of sales. While there are many bootstrapping business attempts using the owner’s personal finances, a high percentage of these startups fail in the first round. Those that succeed not only have a tenacious founder, but also excellent products and services as well as a bit of good timing and luck.

A few of today’s biggest companies started out as bootstrapped startups, including Facebook, eBay, Microsoft, and Apple among others. Household names like Bill Gates and Richard Branson began with self-financed startups.  It’s a tough route to success, but the upside is that bootstrapping your startup means you have complete control over all business decisions.

The origins of bootstrapping psychology

Where does this terminology come from? The self-starter bootstrapping psychology is believed to originate from a popular 19th century saying to “pull oneself up by one’s bootstraps.” This referred to the high-topped boots that people wore at the time, which were pulled up the leg using ankle straps. They did this without outside help, which may have led to the way the term is used today.

People who succeed with bootstrapping need to have a certain blend of character traits. You need to be confident in your own decisions, with a high tolerance for risk and determined attitude. To launch a business on your own, you’ll also need to be competitive and brimming over with fresh ideas. Finally, you’ll need to have the self-discipline to act, and stick with it when the going gets tough.

Bootstrapping business strategies

What bootstrapping business methods do entrepreneurs have at their disposal? While this concept doesn’t allow for taking on outside debt from investors, you can look at methods including the following:

  • Owner financing using personal savings and income

  • Applying for personal credit card debt or loans

  • Applying for government cash grants and tax deductions

  • Selling products and reinvesting any earnings immediately

  • Keeping a small amount of inventory on hand

  • Streamlining operating costs and cutting unnecessary expenses

During the first stage of bootstrapping your startup, you’ll probably need to keep working your day job while you pour income into the new business. As your business starts to grow, you’ll then be able to move on to the secondary customer-funded stage and use money earned from sales to fund growth. With further growth comes the need for additional capital, taken out through personal loans or investment from friends and family.

Pros and cons of bootstrapping business startups

It’s a tough, competitive track to follow, but there are certainly advantages to bootstrapping business startups. Without outside pressure from investors, you’re able to fine-tune your products and run with your ideas to their maximum potential. Business owners can execute their ideas and stay true to their core values and vision statement. And when the business starts to make money, you won’t have to share the profits with investors.

On the downside, bootstrapping can put your personal assets at risk if you’re using them as collateral to take out loans. It can be difficult to maintain a steady cash flow for operational expenses, particularly if you’re new to the business and accounting world.

There’s no doubt that starting any new business is a challenge, whether bootstrapping or not. You can expect long hours for very little profit during the first year. Yet if you know you have a great idea and stick with it, bootstrapping your way to success can be both thrilling and ultimately rewarding.

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