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What Is Bootstrapping? How to Tell If It’s Right for Your Small Business

Meredith Wood

Meredith Wood

Vice President and Founding Editor at Fundera
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
Meredith Wood
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

If you’ve heard of self-funded startups, you most likely know what bootstrapping a business means. Bootstrapping entails building a company from the ground up with nothing but personal savings, with the hope that your business will prosper and earn revenue over time that can be reinvested.

Around 34% of startups choose to bootstrap their business. The idea of “bootstrapping” comes from the early 19th-century expression “pulling up one’s own bootstraps.” In other words, it’s when a startup operates without any external assistance or investment and reinvests all earnings back into the business to help with growth.

Even though bootstrapping has shown success among well-known businesses, this funding method isn’t always easy. Yet, success is possible. Companies like Patagonia, SPANX, GoPro, Tuft & Needle, and GitHub are a few examples of what can come from bootstrapping your business.

Jump to our infographic for a quick overview on how to successfully bootstrap your business or keep reading for a more detailed description.

Self Funding vs. Raising Capital: Which Is Right for Your Business?

Self funding: Funding a project with your own money.

This business model is best for entrepreneurs that have upwards of $10,000 saved and a go-getter attitude to achieve the unachievable.

Crowdfunding: Funding a project by raising small amounts of money from a large number of people.

This business model is best for entrepreneurs that know the power of social media and the effect it can have within their industry. They can raise money via social media with services like GoFundMe to allow peer-to-peer investors to donate. As a result, many peer investors expect positive growth and compensation in return.

Pros and Cons to Bootstrapping Your Business

There are pros and cons to bootstrapping your business. The pros include having the full rein of company decisions, while potential cons include putting your money and time at risk. About 50% of startups fail regardless of whether investors helped start the business or it was bootstrapped.

You’re the boss, but your own finances are at risk. 

Being your own boss comes with many perks. You have the flexibility to work anywhere you want, focus on the tasks you enjoy, and create the jobs you need, just to name a few. While being the founder and CEO is a huge step up, the finances you invest are at risk.

Even though you’re your own boss, you also take the hit when times get tough.

You pick the focus, but might lack a personal network.  

Since this is your company, and your money is pushing this idea forward, you have the right to pick the focus of your establishment. By focusing on core skills, experience, and passion, you can elevate the business and company identity to where you always dreamed. At the same time, you might not have the personal network to rely on to help push your company forward.

Investors have the ability to introduce you to the right people. Without a built-in network, make an effort to go to events and pitch your startup plan to new members within the industry to help build your contacts.

You maintain responsibility, but you might lack business credibility.

Your business, your responsibility. Doing everything in your power to push your startup above and beyond can help build credibility. As a self-funded startup, there isn’t an investor with stellar credibility standing behind your brilliant idea—make the effort to establish your own credibility for your business.

Building your credibility can be shown through sensitivity, honesty, knowledge, and confidence within your industry. This can’t be done overnight, but engaging in these strategies consistently can help build your company persona.

You have the full rein of innovation, but experience slow and (sometimes) steady growth. 

The best part of starting a business is innovation. As a founder, new and innovative ideas can come to mind daily. As your own boss, you’re able to weigh in on these thoughts and build off of them. With that, growth won’t happen overnight. On average, it takes four years for a startup to transform into a “real” business.

Keeping up on trends, pivoting strategies when needed, and growth with the industry can lead to slow but steady growth on the track to company success.

How to Successfully Bootstrap Your Business in 6 Steps

Most entrepreneurs seem to believe they need stacks of cash sitting around in order to start their own business. In reality, self funding a successful business can start with just $10,000. Investing what might take most of your savings, if not all, is risky. The upside is that it can save time and the stress of pitching a delivery circuit to investors, plus allow full rein of your business.

Even though bootstrapping can be a nail-biting business move, many successful companies have made it to the top, such as Patagonia and GitHub. Going about this strategy with the right mindset and a go-getter attitude could make or break this opportunity.

1.Learn to be an expert under pressure

No matter the company, businesses will always have scarce resources. Make growth, not profit, your main focus. Studies show that “people are capable of making just about anything feel like a stressful, high-stakes activity.” Calming activities like taking a walk, meditating, and journaling can help relieve stress and change the brain to make faster, more accurate decisions.

Stress is a mental game that pushes the human body to react in one of two ways: perceiving things as challenges or threats. Successful entrepreneurs are always up for the challenge when stress appears, pushing past any obstacles in front of them.

2. Be innovative and open to new resources

If you try one thing and it doesn’t work, don’t be afraid to move onto another model. While figuring out what works for your business, keep an eye out for changes within the industry and evolve.

There are more tools for businesses to utilize than ever before. Optimizing YouTube videos, online courses, and any other “how-to” manuals can be beneficial for your company’s push to reach its full potential.

3. Care for every customer, client, and fan 

Everything is out there for the world to see, including your customers. There was a time growing a company off “good” product was enough to set a business apart from the competition. With how saturated industries are today, endlessly keeping customers happy will build long-term loyalty.

Supporting those that support you is the easiest win you can get that can set you apart from your competitors. In 2011, a study showed that over 86% of customers will pay more for a better customer experience. While great customer service has the ability to increase brand loyalty, it also has the potential to spread great publicity, thus increasing your company’s overall brand exposure and recognition.

4. Focus your energy on tasks that bring the most value 

You can only exert so much energy in a day. Having limited resources, pay, and time forces small business owners to focus on the important things and optimizing productivity.

Figuring out urgent tasks, creating a routine, scheduling time to complete deep work, and recharging your body accordingly can bring the most value to this investment. How you go about your to-do list determines how productive and successful your business can be.

5. Recruit those on board with your vision

Recruiting talent directly reflects on your business’s productivity and growth. Oftentimes, team members that have the same passion and drive as you are more willing to work hard for a lower salary and even equity—saving your money down the road.

By being transparent about your mission, strategies, and commitment to growth within your company and culture, you can attract more than enough candidates. Be precise by reviewing resumes closely and meeting with talent more than once to help ensure you hire the right team members for your growing establishment.

6. Ask yourself the hard questions 

Wants, dreams, and aspirations of how one might think their company will look can get in the way of any self-funded startup. Having the most perfect office with expensive computers and perfectly decorated board rooms can be nice, but in reality, that money needs to be used wisely.

Being the boss means being truthful with yourself and asking hard questions like, “Will buying this product or service help grow my company?” If the answer is “no,” save your money for investments that can spark growth.

Asking questions can help uncover challenges, generate clear solutions, and cultivate the inspiration needed to learn new skills. Conducting weekly, monthly, and yearly evaluations holds you and your business accountable for staying on track for success.

We went ahead and summarized everything you need to know about bootstrapping a business in our infographic below:

Sources: Entrepreneur | Foundr | Escalon | Bond Street | Projection Hub | Forbes | Small Biz Trends |

Meredith Wood

Meredith Wood

Vice President and Founding Editor at Fundera
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
Meredith Wood

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