Bootstrapping any startup is an exercise in tenacity. While starting from scratch with limited resources might sound like the norm for small businesses, startups planning for future scalability have to decide whether or not to source initial funding to help them get off the ground.
Entrepreneurs who take a self-funded, or bootstrapped, approach to starting their business often do so to retain control over strategic decisions. This approach isn’t for the faint of heart: in an environment where the company must earn before it can spend, bootstrapped entrepreneurs must be agile and organized in order to remain cash-flow positive. Earlier this month, our CEO Michael Martocci visited the Redefining HR podcast to discuss the challenges and rewards of bootstrapping SwagUp. Click below to listen, and read on to learn more about what bootstrapping is, and why it works for SwagUp.
About the pod: Redefining HR is created and hosted by Lars Schmidt, founder of Amplify Talent. Amplify is an executive search and strategic advisory service for HR professionals, whose mission is to “develop, support, and connect the next generation of people leaders”.
The decision to bootstrap has its pros and cons. Early-stage funding from investors, venture capital, or substantial business loans all help to create a bit of runway for new businesses as they work to get established. Because investors have “skin in the game” and a vast network, funded or VC-backed startups can benefit from early-stage growth; however, investor preferences often shape strategic decisions, ultimately affecting the new company’s direction.
For this reason, some startups opt against outside funding in favor of leveraging their personal network and expertise in order to ensure early success. Other founders choose not to raise outside capital because they’re working to achieve product-market fit before turning things over to other investors (or “angel investors”) and venture capitalists.
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Speed v. Growth
As we’ve mentioned, bootstrapped businesses retain complete control over the decisions that affect the company’s direction. To Michael, bootstrapping creates an “advantageous position where you don’t answer to anybody.” In the early stages of development, the ability of a business to refine its approach without external pressure is precious.
Another valuable asset to new businesses is speed. Having less invested capital allows bootstrapped startups to make quick decisions without proving their business case or risking the disapproval of investors. However, while speed is an asset, bootstrapped businesses lack safety nets like venture capital or investments. Each decision must be approached methodically and with intention. These restrictions can slow growth, which can pose challenges when the time comes for bootstrapped startups to raise capital when the time comes.
Why Bootstrapping Works For SwagUp
Choosing to bootstrap at the start of a business doesn’t mean that the company won’t seek funding down the line. When that time comes, the decision might not be a quick one. As Michael shares with Lars, “There’s also an element of this pride [in bootstrapping] . We got through the hard part without raising, so why do it now? Why bring new people in? Why add variables?”. While funding brings growth, it also adds complexity to an otherwise straightforward business model. Michael and the SwagUp team consider questions like these carefully when weighing how, and when, to raise capital.
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To some businesses and entrepreneurs, bootstrapping is synonymous with managing cash flow. Because there’s less money coming in than what might occur in funded startups, bootstrapping becomes a skill to master. Successful entrepreneurs quickly adapt to spending as little money as possible by keeping costs low and using any cash reserves wisely. While bootstrapping may seem like a risky and challenging endeavor, there are many benefits to funding a business, including debt avoidance, fast and flexible decision-making, and control over every aspect of the organization.
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