The term bootstrap is a metaphor which means to better oneself by one’s own unaided efforts. The term is often attributed to the German legend of Baron Munchausen as narrated in Rudolf Erich Raspe’s The Surprising Adventures of Baron Munchausen, wherein he pulls himself out of the sea using his own bootstraps.
In business, Bootstrapping involves starting a business with little or no external support or working capital. The entrepreneur starts the business using his personal funds, financing from the 3Fs (Family, Friends and Fools), personal debt, government grants, sales, sweat equity and internal cash flow.
One of the hallmarks of great entrepreneurs is their willingness to improvise and get things done in spite of the odds stacked against them. Most of the biggest technology companies were bootstrapped by their founders: Apple (Steve Jobs and Steve Wozniak), Microsoft (Paul Allen and Bill Gates), Dell (Micheal Dell), eBay (Pierre Omidayar) among others.
American venture capitalist and one of Silicon Valley’s “super angel” once advised:
“Bootstrapping as long as you can is the best thing for the company because you own the entire company . . . Use your credit cards, do anything you can so that by the time you go to angels you have built a working prototype and have some users. You’ll likely be valued higher and will suffer less dilution.” 1
According to the Building Black Businesses in Canada Report: Personas, Perceptions and Experiences
71% of respondents chose to bootstrap their business with what they can accumulate without any financial institutions’ help.
A majority of Black business owners are starting their businesses by bootstrapping.
As of their recent circumstances, almost 60% of Black entrepreneurs have not applied for any type of funding at least once in the last 18 months citing reasons such as having less than 10 employees, lacking awareness, and not meeting the funding eligibility requirements.
Bootstrapping, for all its early effectiveness, will take you only so far. It doesn’t matter how hardworking or economical you are, or how well you drive early sales and then flow that revenue back into the business; there will always come a time when you will need something that you can’t do yourself and don’t have the money to pay for even if you could. 1
“Bootstrapping involves managing for cash flow, not profitability. That isn’t a long-term plan, but until you are sitting on a pile of cash, it’s the way to go.” - Art of the Start 2.0, Guy Kawasaki 2
Bootstrapping a startup is more possible today than at any other time in history for these kinds of reasons:
- Development tools are open source or free.
- Infrastructure is cheap because of cloud-based services.
- “Middle-layer” cloud-based apps make development easier and faster.
- Employees can work virtually, or you can hire freelancers, so you need less office space.
- The most potent form of marketing is also the cheapest: social media
Entrepreneurs can bootstrap almost any business—especially if they have no choice in the matter. A bootstrappable business model has the following characteristics:
- Low up-front capital requirements
- Short (under a month) sales cycles
- Short (under a month) payment terms
- Recurring revenue
- Marketable through social media and word of mouth
In his book, The Bootstrapper’s Bible: How to Start and Build a Business with a Great Idea and (Almost) No Money, author and entrepreneur Seth Godin noted:
+Bootstrappers run billion-dollar companies, nonprofit organizations, and start-ups in their basements. A bootstrapper is determined to build a business that pays for itself every day. In many ways, itʼs easiest to define a bootstrapper by what she isnʼt: a money-raising bureaucrat who specializes in using other peopleʼs money to take big risks in growing a business.
Successful bootstrappers know this: Your business is about the process. Itʼs not about the product. If you structure a business model that doesnʼt reward you as you proceed, it doesnʼt matter how much you love the product. Pretty soon there wonʼt be any product to love.
The bootstrapper is focused on finding a market that will sustain the process. A platform that responds to the work you do. With a business model that works, the deal is simple. You invest time, effort, and money. In return, your market responds with sales, cash flow, and profits. 3
When you bootstrap, you are forced to get good fast. As humans, we prefer to put in only as much effort as we need to, but whether we recognize it or not, we all have extra gears. Sometimes it’s not until things get really tough that we find the gears that allow us to shift into overdrive — that is what bootstrapping does for you. Admittedly, it is hard, but it forces you to get creative with your strategy and come up with solutions you would never have thought of. 4
