Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about
the pros and cons of bootstrapping startups. Everyone romanticizes about bootstrapping
your own business where you don’t need any money from external investors, like great
stories like MailChimp, meaning creating a company from nothing into hundreds of millions
of dollars on a yearly basis. That’s something that entrepreneurs dream
about where they don’t have to report to anyone, where they can do their own thing,
and they can move forward without any type of investment from outside sources. In today’s
video, we’re going to be talking about the pros and then also the cons on bootstrapping
your startup. So, let’s get into it! What is bootstrapping? Bootstrapping is growing
your business without any type of money from investors. The way that you’re building
up the business is by getting that revenue in from your own customers and reinvesting
it into the business and into different things so that you can continue to expand.
In terms of the pros of bootstrapping your own business, the first one is very clear.
It is that you have complete and 100% ownership of your business. Here, you make your own
decisions. You don’t have anyone that you need to report to. You don’t have anyone
that can block your decisions at a board level or via a shareholder vote. You are the one
that determines the path and the future of the business, which is something fantastic
and something that also helps you to bring to life something that you’re seeing in
your own mind, with your own colors, without getting any type of influence from other parties.
The next is the control over the direction. Typically, when you have accepted money from
external investors, essentially here, you have the board that is going to be voting
for everything, and you may come with a board with one thinking and a way of going about
things. Then the board is going to have a completely different understanding or way
of thinking as to how things should be done. In many instances, that board can actually
fire you as the founder or the CEO. Again, I think that control is a really good positive
of bootstrapping your own business. Next is keeping your business. When you are
accepting money from investors, those investors are not looking to become investors forever.
They are expecting that maybe in five or a seven-year horizon, your company is going
to be acquired by a larger business, and that is going to give them their returns on the
investment that they put in. If you’re looking at building a company
for the family or a lifetime type of company, you do not want to get money from investors
because you want to keep it. You don’t want to do an exit of it. Again, you need to match
what are going to be your expectations from the expectations of the investors that are
coming in? And if you want to keep your company for the very long run, you want to make sure
that you bootstrap it and that you keep the control and direction of everything.
Another thing here is the sense of accomplishment. The fact that you have been able to build
this from the ground up without the help of any investors, with your own sweat and tears,
with the money from your own customers, that’s a great thing to be proud of. Again, this
is another pro and something that people that are bootstrapping their business really appreciate.
Next is building a business that really works. When you’re bootstrapping, and you don’t
have a bunch of money to throw around, you are really going to be determined to find
a business model that works and to get that business in a way in which you are addressing
a need from customers so that you can get paid, and you can get paid quickly so that
you can use that money to reinvest in the business.
Again, you see this a lot. People that raise money that go out to market that start throwing
money on nonsense stuff and that are not being careful with cashflow is what ends up killing
them. So, by bootstrapping your business, you’re going to be always very concerned
as to how every dollar is invested, and that’s one thing that gives you the ability to be
grounded as to how you’re essentially investing the money.
In terms of the cons, the chances of survival are going to be reduced if you’re not getting
external sources to invest in your money if you are bootstrapping your business. This
is because you don’t have a lot of margin for error. When you’re getting investments
from outside investors, you’re going to leave yourself a little bit of a cushion to
be able to make certain mistakes. Obviously, when you’re building a business from the
ground up, you’re going to make mistakes. The thing about bootstrapping is that you
are not going to be able to make mistakes that can knock you out of the game because
there’s going to be no coming back, no additional oxygen, no additional room for these types
of errors. So that’s one of the cons of bootstrapping, which is that you’re crossing
a very thin line, and any mistake can lead to death.
The next thing is growth. Growth is going to be much slower when you’re bootstrapping
because you’re reinvesting that money that is coming in from customers. So it’s going
to take much longer to be able to develop your business rather than getting a ton of
money from outside investors, deploying it in marketing, and making it blow up.
In bootstrapping, you’re going to be very slowly building up the business, and that’s
going to give the possibility to competitors, direct and indirect competitors, to potentially
beat you because they have more money to deploy marketing, to get more market share and more
mind share from the customers that you’re going after.
Then, you’re going to have the lack of top-level help because when you’re raising money,
you’re not raising money for the money itself, you’re raising money because of the networks
that are giving you the money because you can leverage those toward distribution, getting
top-tier talent, toward getting your business acquired, and introductions to other investors.
Those investors are people that have done this before, they’re sophisticated, they
understand your market, and they will be sitting on your board, perhaps, and bringing in talent
to management, to leadership. Those are some of the things that you’re not going to be
able to have access to. You’re going to be recruiting yourself, and that’s going
to be more difficult when it comes to getting A+ type of talent.
The next thing is you’re going to have to work a lot harder. In this case, you’re
not going to be able to delegate right away tasks that are more admin or things where
you can keep your eyes above the weeds. Here, you’re going to have to work much harder;
you’re going to have to multitask even more, and that could take some time away from the
strategy that you want to see and oversee at the time in order to execute later.
When you’re bootstrapping, you’re also going to be less organized. You’re going
to have less help; you’re going to have less time that you can work on the books,
to keep things clean. That is something that could trigger getting deals done at a later
stage. Hopefully, you liked this video, and if that
was the case, I would love to hear on the comments section whether you’ve decided
to bootstrap the business or not. Then also make sure that you Like this video. Then subscribe
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out every week. And take a look as well at the fundraising
training, which is the program where we help entrepreneurs from A to Z with everything
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of entrepreneurs helping each other all over the world, and I think that you would find
tremendous value in it. Thank you so much for watching.