Bootstrapping is an extremely effective way to start and grow a company. It encourages growth through cost-effective, creative solutions when you don’t have much spare capital. Bootstrapping a business will affect every decision, from the moment you register a company, to when you exit the business. As your business grows it can be tempting to move away from the bootstrap philosophy and take on funding.
This might not be right for your company. Here are 7 reasons why…
1. Is outside investment really necessary at this point?
Attracting investors and securing funding takes a massive amount of time and effort. Time and effort that could be put to better use in continuing to grow your (still fairly young) business. The early days of your startup should be about building an established customer base in a cost-efficient manner to set you up for long term success.
By postponing the search for funding, you’ll have more time refine your product or service, and overall business proposition. It will also better cement the bootstrap mentality into your company’s ethos. Once this foundation is in place you’ll have more scope to try and secure outside funding. You will however be doing so at the expense of control of your business.
2. Will your product evolution stagnate?
Extensive feature experimentation when you first start a company shouldn’t be necessary. Before starting your company, you should have made assumptions and validated them based on research. Of course, not all your assumptions will be correct. Organic and gradual improvements are beneficial to you and your customers. You will be able to pinpoint the variations that improve your customer experience.
Improving your product after acquiring funding is going to be harder. You will be under constant pressure to grow in a rigid manner. There will be fewer opportunities to listen to the market and experiment with different features.
3. Could funding dent your drive?
When bootstrapping, the pressure is on you in regards to building a profitable business. Meeting targets, coming up with new innovations, solving problems – the onus is on you.
Bootstrapping creates a culture of ‘success by scrappiness’ in your company. Aside from the cost-effective growth this allows, it creates a great sense of camaraderie. This provides great employee retention and a helps form a culture of enjoying work. The pressure to succeed without reserve capital further promotes growth in your company as it is do or die.
Whilst funding may ease some of this pressure, is it possible that this is not the type of pressure that you want to lose? Could the previous need to satisfy the customer take a backseat to satisfying investors? The financial cushion allowed by outside investment may also cause you to become complacent in your problem solving. You could become less inclined to find creative solutions to your problems. Instead following a more formulaic approach to problem-solving.
4. What happens if you have an exit strategy?
Got an idea on how and when you’re going to exit your business? With investors on board the chances of these plans coming to fruition will take a significant drop. As the person who got the company where it currently is, you are now an asset in the eyes of the investor. You also risk missing out financially as the investor may need to withdraw their funds. This may lead to the company selling for less than it is actual worth due to the convenience of being able to sell quickly.
If you do have an exit strategy strategy in place and do not wish to compromise on this, an investor may not be right for you. Although you’ll sacrifice faster growth for a more steady, organic rate of growth, you’ll retain full control of your company’s destiny.
5. Will it kill the culture?
The importance of a progressive company culture is well-documented, and no one has more influence on a company’s culture than the founder. A productive and happy environment is very possible when bootstrapping. Not only will it help your staff retention, it’ll also significantly improve your productivity as staff are more likely to enjoy their work.
6. Creating this positive company culture takes time. Diminishing it doesn’t.
Once you take on funding from outside investors, it’s likely you will have less control of the direction and quality of your company culture. At the very least a positive company culture will be somewhat diluted when an outside influence gets involved.
7. And now an alternative… bring in a second director
Rather than taking on outside investment would it be possible to bring in another director to your company instead?
You will add additional expertise and capital to the business without sacrificing as much control as with an investor. In short, It’s a far less drastic option that will keep you in touch with your bootstrapping roots.
Bootstrapping is a popular strategy in the UK’s current company startup boom, but it is important to not lose sight of why you are bootstrapping as you grow. Bootstrapping forces a business to be extremely revenue-focused and puts the growth of a company wholly down to the actions of the owner. A bootstrapped company is a lucrative one for investors as you have proven that there is a thriving market and that your product fits.
The more time you spend bootstrapping, the more attractive your company appears to investors. When the point of potential acquisition does happen, you’ll now be able to consider all your options.
Joe Hurst is the paid search manager for Company Formation MadeSimple by day, and runs a digital marketing agency by night.