As an entrepreneur, one of the first decisions you will have to make is where to find your capital. Many elect to go on fundraising rounds, and for good reason. Larger starting capital makes much of the process a lot easier. However, there is value in choosing to bootstrap your business, both in how it affects its systems and how it changes you as an entrepreneur. Here are eight reasons why you should strongly consider bootstrapping over fundraising:
1. Bigger Returns
The problem with fundraising is that it comes at a cost – you have to divide your revenue. For many entrepreneurs, this hardly poses an issue, considering the benefits of a bigger pool of capital. However, this division of revenue also divides ownership and reduces your startup’s flexibility. More investors mean more “owners” who have some power in your startup. Bootstrapping it ensures that the buck starts and stops with you. For a little more risk and a lighter wallet, you get more out of the effort you put in.
2. More Freedom
Investors will always have some say in how your company is run, even if you maintain full ownership. This can keep you from experiencing one of the best parts of entrepreneurship – full control over your life and its outcome. Bootstrapping keeps the experience “pure” so to speak. You get to do what you want, and for some people, no amount of capital is worth losing that freedom.
3. Bootstrapping Forces Efficiency
One of the biggest mistakes an entrepreneur can make is to set too long a runway. A large amount of capital can make them careless and they set milestones that are too few and far in between. Because you have little capital to work with, bootstrapping forces you to focus on the most important thing for your startup – creating and selling a product to create revenue as quickly and as efficiently as possible. You also put more focus on the customer for the same reason, which leads to a better business and offering.
4. You Stay Off the Radar
On paper, small companies have few advantages over large companies. Startups might be faster and more nimble than a behemoth of a business, but eventually, money will win. Getting outside investors alerts more people to your startup and its product – and if a big business realizes that you have a shot at taking their target market, they may take steps to keep your startup from ever gaining momentum. Bootstrapping your business limits exposure and lets you work in relative secrecy for a longer period, which often gives you the power to choose when to engage the competition.
5. You Get Smarter
You get a greater sense of ownership over your startup when it is entirely yours, which is the case when you bootstrap. There are no other hands on it, no one else’s money in the pool – there is only you and your bank account. While scary, that fear is a good thing. That fear is what will enforce smarter decision making. When it is not your money, you might embrace the temptation to take bigger risks. When all you have is your wallet, you tend to be a lot more careful, which is generally a good attitude to take for your startup.
6. Bootstrapping Lets You Focus on the Startup
A big problem with fundraising is that it is time consuming and distracting. You have to go find investors, meet them, show off your startup, and wait for their response. You lose control over your time table, and while you are doing all those things, the startup continues to run. Bootstrapping, while difficult, removes a distraction. Instead, you are forced to put all your energy towards the startup and your product, which can lead to better overall performance from both you and your company.
7. Bootstrapped Companies are More Appealing to Investors
The greatest irony of fundraising is that investors tend to flock towards companies that do not need their money. A startup with a proven concept and a receptive market is making money, so an investor will feel much safer investing in them. While that makes it difficult for a brand new business to attract an investor, your bootstrapped startup will not face the same problem. If your bootstrapping efforts are successful, you will prove that your idea and company can stand on its own two feet, and you can use investor infusions to help scale your company and take things to the next level.
8. Bootstrapping Reduces Issues
Investors are great, in theory, in that they can give you a good amount of starting capital. However, most investors are rarely silent. They will enthusiastically give you their thoughts and ideas, and to a certain extent, you have to listen to them. Some advice will be invaluable. Most of that advice, will likely be useless or ill-informed. Removing investors from the equation lets you listen to the prime expert on your startup – yourself – without a chorus of arguably less qualified voices to muddy your choices.
Bootstrapping a startup is by no means an easier path than fundraising, but it should not be ignored entirely. Choosing the method by which your startup begins has an immense impact on your life as an entrepreneur. Consider the benefits and drawbacks of each path before choosing one, and your future self will thank you for it.