Definition of Bootstrapping a Business
July 28th, 2010 // 8:43 pm @ Kwame Kuadey
This blog is about how to bootstrap your start-up to profitability. I will be sharing tips on how I bootstrapped my first company, GiftCardRescue.com to a successful million dollar business. But, before I go any further, it will be helpful to define what I mean by bootstrapping a start-up.
The best definition of bootstrapping I found is from Wikipedia, which says “Bootstrapping in Business is to start a business without external help/capital. Startups that bootstrap their business fund development of their company through internal cash flow and are cautious with their expenses. Generally at the start of a venture a small amount of money will be set aside for the bootstrap process.”
In other words, bootstrapping involves starting the business without venture or angel funding. The obvious question is why would someone choose to take the hard road (bootstrapping with personal funds) when there is an easier road (venture/angel funding) available to them? Well, the truth is that the “easier road” is actually the least traveled for most start-ups. That is because for the longest time, a myth has been perpetuated that all you need to do is to come up with the next great idea and venture capitalists will be tripping over themselves to get a piece of the action. In reality, less than 5% of venture money goes to seed-stage startups. Which means for 95% of start-ups, seed funding comes from personal resources (in my case, credit cards) or borrowing/gifts from friends and family.
The irony is that venture funding usually follows later, after you have successfully proven the model and built something of value (generating revenue, and maybe profitable, or close to profitability). So, if we can agree that the probability of a start-up getting venture or angel funding as seed capital is next to impossible, then the question becomes, how do you maximize the funds you are able to raise from personal resources or borrow from friends and family to start your business? The goal is to get to the point where the business is generating enough cash flow to fund operations, and eventually lead to profitability. That is where bootstrapping comes in.
Over the next couple of posts, I will discuss the benefits of bootstrapping to the entrepreneur, after which I will introduce in broad terms, my bootstrapping ideas, which will form the basis of this blog. Stay tuned!
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