I know there are a lot of great stories out there, but the truth is most businesses never get started because of investors. Most businesses get started by an entrepreneur with very creative thinking and even more creative ways of using their own money.
What Bootstrapping is, is getting start up funds from family, friends, and in many cases your own full time job. Many entrepreneurs simply use their own ingenuity and hard work to start their businesses.
You may or may not raise outside capital, but you'll certainly use your own money to get your business going, so let's figure out how to make the most of it.
Bootstrapping is and is not
First, in regards to Bootstrap Capital do not try and just figure it out on your own if an investor doesn't give you the money. In many cases that will fail.
If you are thinking about starting a business, the first thing you want to do is use your own money to get it going. It's not an alternative to finding funding.
When you are looking to start a business your own money is always the first funding source, even if at some point you do get outside funding, you must discover how to use your own Bootstrap Capital.
Lest face it. Most business start ups will never get investors. That doesn't mean that you should just quit trying. It means that you should make smart use of Bootstrap Capital. Most entrepreneurs just buy the bare necessities and get by with minimal equipment and resources. They figure it out. That's how businesses actually get started.
The most realistic path to growing your company, even if it does eventually take outside funding, is to exploit every possible method of Bootstrap Capital you can get your hands on.
Bootstrapping - Easier Fundraising
There are two huge benefits to using your own money to start your business.
The first,in many cases you don't have to go after and beg for money from others. It can be intimidating to start a business now when all you see are costs, expenses, and bills. It would sound really nice to have a check from a large investor coming in. Yet and still your own money is going to be the easiest to get.
But eventually the business will start generating some revenue, and eventually it'll start paying for itself. Usually what you need is time to get there, and Bootstrap Capital is what typically fills in the gaps.
The second benefit is that if you can show that you have used Bootstrap Capital effectively, it will create even more interest from investors.
If you were an investor, wouldn't you much rather give your money to an entrepreneur that has made great progress without any outside capital than one who tells you "I can't get anything done unless you write me a check"?
Whether you raise outside capital later or not, Bootstrap Capital will create a huge benefit to your efforts to grow your business.
Use Bootstrap Capital to Get Started, then Outside Capital to Grow
From the instant you have a great idea up until the point where your business starts building some headway Bootstrap Capital is what's going to pay the bills.
Therefore it's extremely important that you understand every possible form of Bootstrap Capital. Here's a quick overview of each source. Later we'll go into much more detail about how to leverage each one individually.
Every startup is intimately familiar with Sweat Equity. It's the exchange of your time or resources for stock in a company. It's probably the most common form of currency a new startup company has, and it's incredibly valuable.
Sweat Equity is a familiar statement to most startups. It's all about exchanging of your own effort, time, or money for ownership in a company.
When you and your partners are putting in hard work daily to get your company started in exchange for the ownership, you're earning Sweat Equity. When your Web developer programs your site in exchange for 3% of your company, you're giving up Sweat Equity.
Friends and Family
It's a huge surprise when your Aunt Pam becomes an investor in your company, but there it is. You're now asking her for $15,000 in investment cash to get your business off the ground. She's now a partner in your new venture. Now She's on your team, not just in your family.Friends and Family can be an essential source of early stage capital because frankly they're the only people that will write you a check just because they like you. Entrepreneurs who learn how to use their extended networks of business contacts and relationships can find substantial amounts of capital if they really take time and look for it.
Savings and Credit Cards
No one likes raiding their personal savings but let's face it - you're the only person who's truly willing to financially fund this business today. No one really has the specific numbers but the best guess is that just about every entrepreneur has had to depend on their bank accounts and maxing out their credit cards to get their businesses started. Just the thought that you'd rather not to touch your savings or put yourself into personal debt is unheard of. It's going to happen, and honestly, it really doesn't feel good at all. But it's the price we all pay for building our vision.
The latest thing in early funding is called Crowdfunding, and it involves posting your investment opportunity online. There are many places to this. Even on something as simple as Craig's List. This way many people can see your idea.
Crowdfunding tends to work pretty well for small projects that need less than $15,000. Normally it does not work at all if you're going to exchange stock for cash (that's called a "public offer", and there's an entire government agency, the SEC, that would prefer you don't do that.) Crowdfunding therefore limits your options to raising small amounts of money as repayable debt or in the form of a donation.
When you think about it, Bootstrapping is the way for most people to get started. How many times have you heard about a young entrepreneur hitting it big on his own. Just look at Microsoft. It was started in a garage and now essentially owns the computer software market.
If you do this right you could actually start and build your company with no need for outside investors. So even if funding from investors never happens, you can still build a successful company.
Just remember this. Never needing investment capital will always be best. That would be perfect…wouldn't it?