Bootstrapping is likely to be part of the history of nearly every successful company. In many cases, these companies are entirely bootstrapped before management accepts venture capital or other means of outside funding.
Entrepreneurs who are self-made—that is, they bootstrapped their way to success—are a rare breed. To start a business and bring it to successful fruition takes a sound mix of confidence, risk tolerance, self-discipline, determination, and competitiveness. Bootstrappers take an idea—and using talent and professionalism—build a worthwhile business without the backing from investors and having little or no starting capital. It takes great dedication, sound work ethics, and pure single-mindedness to achieve success this way. Some of the greatest entrepreneurs—such as Sam Walton and Steve Jobs—exemplify these characteristics.
Entrepreneurs who bootstrap their companies start with very little money and no outside investments to build their business.
Instead, these entrepreneurs might rely on sweat equity, customer funding, personal debt, or personal savings to provide initial capital.
For new companies, bootstrapping might be an effective model because it encourages simplicity and flexibility during the early-growth phase.
Software development platform company, GitHub, launched as a bootstrapped startup in 2008 and was bought by Microsoft for $7.5 billion in 2018.
The origin of bootstrapping is unclear, but a couple of sayings that apply are:
“Pull oneself over a fence by one’s bootstraps.” This saying originated in the early 19th century United States and implies that it is an impossible action,
“Pulling oneself up by one’s bootstraps.” This refers to 19th-century high-top boots that were pulled on by tugging at ankle straps. It generally means doing something on your own, without outside help, and in many cases, the hard way.
This definition provides additional insight:
Bootstrapping is the minimalistic business culture approach to starting a company, which is characterized by extreme sparseness and simplicity. It usually refers to the starting of a self-sustaining process that is supposed to proceed without external input.
In other words, bootstrapping is a process whereby an entrepreneur starts a self-sustaining business, markets it, and grows the business by using limited resources or money. This is accomplished without the use of venture capital firms or even significant angel investment.
By using a collection of methods to minimize the amount of outside debt and equity financing needed from banks and investors, companies that are bootstrapping will look at:
- Owner Financing: The use of personal income and savings.
- Personal Debt: Usually incurring personal credit card debt.
- Sweat Equity: A party’s contribution to the company in the form of effort.
- Operating Costs: Keep costs as low as possible.
- Inventory Minimization: Requires a fast turnaround of inventory.
- Subsidy Finance: Government cash payments or tax reductions.
- Selling: Cash to run the business comes from sales.