A bootstrapped company usually grows through three funding stages: 1) beginning stage, 2) customer-funded stage, and 3) credit stage.
This stage normally starts with some personal savings, or borrowed or investment money from friends and family, or as a side business—the founder continues to work a day job as well as start the business on the side.
In this stage, money from customers is used to keep the business operating and, eventually, funds growth. Once operating expenses are met, growth will speed up.
In the credit stage, the entrepreneur must focus on the funding of specific activities, such as improving equipment, hiring staff, etc. At this stage, the company takes out loans or may even find venture capital, for expansion.
To run a successful bootstrapped company, an entrepreneur must execute a big idea, focus on profits, develop skills, and become a better business person.
Execute on Big Idea
With a big idea, it is best to break it into a series of ideas, and then execute the startup on the best portion. Then you follow up on other sections later. In most instances, a company will be successful in its execution of a business idea, rather than the idea itself.
Focus on Profits
This is what funds the business. A very different mindset must be employed for bootstrapped startups compared to the management mindset in a venture-funded or angel-funded company. Usually bootstrapped businesses expect to be around for a long time, slowly and quietly growing, developing paying customers to meet the business costs; whereas, companies involved with outside funding will be expected to have high growth so that the investor can have a profitable exit strategy.
Development of Skills
People starting a business must develop a wide variety of skills, as well as passion, resilience, perseverance, and courage. These are usually required to make a bootstrapped company workable.
Becoming a Better Business Person
Improving one’s core values matters too, including being resourceful, accountable, and careful, as well as enthusiastic, passionate, and relentless in the advancement of the company.
Companies Suitable for Bootstrapping
There are generally two types of companies that can bootstrap:
- Early-stage companies, which do not require large influxes of capital, particularly from outside sources, which therefore allows for flexibility and time to grow.
- Serial entrepreneur companies, where the founder has money from the sale of a previous company to invest.