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 (a form of private equity and a type of financing that investors provide to start up companies and small businesses that are believed to have long term potential growth or other means of outside funding.
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.
5 Bootstrapping Methods
- 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.
- Selling: Cash to run the business comes from sales.
3 Stages Bootstrapping Companies Grow Through
- Beginning 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.
- Customer-Funded Stage
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.
- Credit Stage
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.
Last Thought
To run a successful bootstrapped company, an entrepreneur must execute a big idea, focus on profits, develop skills, and become a better business person.
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