These days, it seems like venture capital funding grows on trees. Constant media coverage of funding rounds leads us to believe that just about every business gets millions of dollars in funding, and that there’s virtually no way to start and grow a business without a massive initial cash infusion. These are unfortunate beliefs, because they couldn’t be more wrong.
In fact, only about .0005% of startups actually receive VC funding – that’s right, only 1 out of every 2000 startups has a chance at funding. And even discounting those (terrible) odds, bootstrapping – the process of starting a business without significant outside investment – has a lot to be said for it. Bootstrapping lets founders hold on to more equity in their business, meaning they can keep any future profits or proceeds from a liquidation event. Furthermore, bootstrapping means you don’t have to give away voting rights, so you can stay in control of your business as it grows. And even if you do decide to take on money, if you’ve already built a great product or service and a customer base, you’ll be in a much stronger position to negotiate a deal with a VC when (or if) that day comes.
So what’s the secret for bootstrapping? Well, there isn’t one – every business is different, so every business deserves its own set of unique bootstrapping tools and strategies. But while you’re discovering the ones that work best for your own startup, here are a few of our favorites:
- Terms are Everything: We put this first because it’s one of the most important and overlooked tools in your toolbox. When you start to work with customers and vendors, they’ll likely have a set of terms that constitute business-as-usual for them – but that doesn’t mean they have to apply to you. Working out a deal structure with your associates – say, net 30 payment terms from customers and net 90 payment terms from suppliers – can help you avoid cash crunches and even get paid for products before you deliver them.
- Resources: This is almost a no brainer, but it still deserves a spot on the list. Tools like LegalZoom can help you avoid the expense of lawyers; Squarespace makes setting up a website take 20 minutes; and Lynda.com lets you learn anything for just $25 a month.
- Generate Revenue: This one may seem trite, but it’s important. Bootstrapping is kind of like a race against the clock: you’re trying to get your business to generate revenue before your cash all burns off. Starting to generate revenue early on – even if it’s through a lo-fi, beta version of your product – is a great way to keep your startup afloat while also gathering critical user data to improve the product.
Bootstrapping is a great choice for growing a business, but for more reasons than just equity or decision making. Ultimately, bootstrapping is more of a mentality than anything else. It’s about running lean, staying adaptable, and being scrappy enough to outcompete even the Goliaths of the world. By choosing to grow your business through bootstrapping, you’re imbuing it with a culture that’s primed for success – with or without big VC funding.
Thanks to Ricky Montalvo for the image.