(Welcome to another addition of Small Business 101. Today we’re going to talk about bootstrapping, one option you can take while starting a small business. Let the funding talk begin!)
Q: Alright, just what is bootstrapping?
A: Bootstrapping is where a small business makes due with only a small amount of capital and spends it only as it comes in. In essence, you treat the business the way you should treat your personal expenses, only spending the money you actually have, rather than relying on debt and borrowing to provide your working capital.
Q: That’s all it means? Why the odd terminology?
A: The term bootstrapping apparently derives from The Surprising Adventures of Baron Munchausen, an adventure story first published in 1781, wherein the hero apparently pulled himself up out of the swamp by his bootstraps (or possibly his hair). The idea being to rely on your own skills and attributes in order to make your business (or other venture, as there are several meaning of bootstrapping) a success. As to why this particular phrase from this particular book became the reference point for this phrase, to that I don’t really have a good answer, other than it sounds pretty rugged and self-reliant.
Q: *Humph* Alright, why try to bootstrap?
A: The alternative to bootstrapping is to get money from an outside source, such a business loan or money from investors. While these methods do their own advantages (which we’ll get to in a minute), they have the drawback of making your company beholden to outside influences. You’ll have to ensure that you can meet repayment terms of the loan or the demands of investors on top of all the other requirements of your business endeavor.
When you bootstrap, on the other hand, you’ll only have to worry about satisfying your business’s needs. There’s no worry that if your business fails, you’ll be left with a bank loan that needs to be repaid or angry investors who may attempt legal action against you. You’ll also have to work within the limits of your business’s income, the same as with sticking to any other budget (which many people could use more experience doing, if recently history is any guide.)
Q: What are the downsides, then?
A: In a word, money. Bootstrapping means that you’re going to be relying on your own money to provide all the initial capital you need, at least until you start producing an income from the business that can cover your expenses. Depending on what type of business you want to start as well as your personal savings, you might be able to finance it with your own savings without a problem. If you want to start an Internet based business, for example, you’ll likely be facing fairly low monetary barriers. If you already have a computer, your only costs will likely be for hosting and a domain name, neither of which will cost much more than one hundred dollars a year, if that.
On the other hand, if you have your eye on a business that requires a physical location, you’re going to face much higher expenses. The cost of the building, renovating it for your particular business, buying supplies, hiring workers (if you need them); all these expenses add to the cost of getting your business off the ground. If you don’t have a rather large amount of money in your personal savings (enough to start your business while still leaving money for your personal expenses and a hefty emergency fund), you’ll likely need to get funds from an outside source, whether a bank, interested investors, or your family and friends.
Q: If I want to bootstrap my way into a small business, how should I do it?
A: The first step is to make sure you do your research and learn just how much time, money, and other resources you’ll need to put into your business. If it is something you can do part time, like starting a blog, making and selling crafts, or selling artwork, you can continue to work a regular job and build your business during the nights and weekends (a very popular method of expressing your entrepreneurial desires). If your business plan involves more involvement, things get trickier; you could find yourself a partner (or more than one), split the duties with your wife or husband, or perhaps even rely on your spouse’s income if you leave your job to build up your business. There are almost as many ways to pursue your dream as there are dreams out there, you just need to find the one that will work best for you.
That’s it for bootstrapping; good luck pulling yourself up by your bootstraps, everyone who’s looking to start their own business!