One of the earliest and most critical decisions an entrepreneur must make is whether to self-fund a startup by bootstrapping, or raise outside capital through investors. The implications of each decision are significant.
How you fund your company will help determine its chances of success, scale, long-term prospects, and ultimately, your relationship within the company. As an entrepreneur who has invested significantly in my own company, I believe bootstrapping is the best option. It’s never easy, and it’s not always glamorous, but bootstrapping will force you to become a better, stronger entrepreneur with a more vibrant business.
Here are eight reasons shy you should consider bootstrapping your startup:
The creative and executive freedom that entrepreneurs have at the beginning of their startups is priceless. Bootstrapping a company with your own funds protects that freedom without the (often stifling) accountability to an outside “voice” protecting its investment. When you bootstrap, you are that voice — and you’re the creator too. Even if you supplement with outside funding down the road, bootstrapping gives you far more control over your business in the critical early days.
Smaller = Scrappier
With less capital to work with, you will be forced to start small, test assumptions carefully, and then scale up. Along the way, you will learn about your products, markets and customers, more intimately. If you make mistakes — as all entrepreneurs do — they will almost certainly be smaller in scale and impact. Meanwhile, you will become a scrappier, more vigilant founder.
Another advantage of bootstrapping is a greater focus on products and services. The pressure of a shorter runway will force you to get your products right. When every last dollar matters, you need to pay attention to your customers and their needs by building a superior offering. That insight and dedication will increase the likelihood of generating revenue and building a brand more quickly.
High Stakes, Higher Rewards
When you bootstrap your startup, you are your company’s original (and only) shareholder. As a result, you will retain control and equity. Bootstrapping also aligns your incentives with the success of the company: If it fails, so do you; if it succeeds, you succeed too — and at higher multiples. This also keeps ownership clear and manageable; no other investors will claim parts of the company or impede the important, rapid decisions you have to make in a startup’s early days.