Most companies receive some kind of funding in order to get started, whether from investors, loans, grants, or donations. However, some entrepreneurs are wary of giving away their equity or taking on debt. One option for these entrepreneurs is to bootstrap their company. Bootstrapping is when the owner funds the company purely from savings and revenue, maintaining 100% ownership. There are many things to keep in mind when it comes to bootstrapping, so read on to find out if it’s a good option for you.
Many companies have a single majority owner, whether they take on additional funding or not. There are some benefits to this, such as having the final say on decisions. However, owning 100% of your company comes with even more perks. Down the line, if you sell the company outright, you will not have to split the profits. Additionally, if you are ever in a tough financial situation, you will be in a better position to sell part of your company and use that money to stay afloat. A small-scale benefit is that your employees will always know who to look to for the direction of the company, as there is no one else you have to directly answer to.
Although bootstrapping takes away the risks of debt and selling equity, it can also make companies grow slower than others. For some people, that is not a concern, as they would rather have stability over rapid growth. However, in some industries, this does not work out so well. Competition can favor the company that is growing the fastest, although they do have a higher risk of losing everything. It is a risk-reward situation that every entrepreneur needs to weigh.
When people invest in your company, they want to see it succeed just as much as you do, and they have a lot to lose if it doesn’t. This is why many investors are willing to offer advice to rookie entrepreneurs that they invest in. When you bootstrap a company, though, you may not have inherent resources for such advice. That means that you need to do much more research in order to avoid common pitfalls and legal or financial trouble. One way to avoid this is by hiring personnel who are very experienced and can help you make difficult decisions.
Bootstrapping can sound great to entrepreneurs who want full control over their company. However, it does come with its cons and it may not be an option for everyone. Consider what your company could look like if you bootstrapped, as well as what could happen if you sold equity or took out debt.