Contrary to what many believe, most businesses don’t get started by way of a big investment from some deep-pocketed investor. Most businesses get started by an entrepreneur using their own means to launch the company.
Finding the capital you need without professional investors is considered Bootstrapping.
Bootstrapping involves all sorts of capital – friends and family, your personal savings, crowdfunding, and of course the ever popular “sweat equity” (getting people to work for stock in your company).
You may or may not raise outside capital, but you’ll certainly use Bootstrap Capital to get started, so let’s figure out how to make the most of it.
Bootstrapping is Plan A, not Plan B
First off, let’s not think about Bootstrap Capital in terms of “if an investor doesn’t give me money, I guess I’ll try to figure out how to do it myself.” That’s a recipe for failure.
Bootstrapping is your Plan A. It’s not an alternative to finding funding.
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.
99% of businesses are not going to attract angel investors and venture capitalists. That doesn’t mean 99% of entrepreneurs just pack up and go home. It means that they make intelligent use of Bootstrap Capital. They stay lean. They stay scrappy. 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 Makes Fundraising Easier
Using your own methods of funding has two huge benefits.
The first is that it often leads to you to a point where you don’t actually need outside funding. Sure, it’s intimidating to start a business now when all you see are costs and having a big outside check sounds real nice.
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 investors will be far more interested in your business if you show them how effectively you’ve used Bootstrap Capital.
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, focusing on making the most of your Bootstrap Capital will provide a huge benefit to your future efforts.
Use Bootstrap Capital to Get Started, then Outside Capital to Grow
Investors will be far more interested in your business if you show them how effectively you’ve used Bootstrap Capital.
From the moment you have an idea up until the point where your company starts building some traction (finding new customers, getting a product launched); Bootstrap Capital is what’s going to pay the bills.
Bootstrap Capital is what’s going to pay the bills.
Therefore it’s important to understand (and exhaust) every possible form of Bootstrap Capital. Here’s a quick overview of each source. We’ll go into much more detail about how to leverage each one individually a little later.
Sweat Equity
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.
Every startup is intimately familiar with Sweat Equity. It’s the exchange of your time or resources for stock in a company.
When you and your co-founder are putting in 18 hours a day to get your company started in exchange for 50% of the stock, you’re earning Sweat Equity. When your Web designer builds your company’s site in exchange for 2% of your stock, you’re giving up Sweat Equity.
Friends and Family
You may have never guessed that one day your Uncle Ned would be an investor in your company, but there it is. You’re now hitting him up for $10,000 in investment cash to get your company off the ground. He’s now a partner in your new gig. He’s on your team, not just in your family.
Friends and Family are a very important 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 dig.
Savings and Credit Cards
No one likes getting into their personal savings but let’s face it – you’re the only person who’s truly willing to underwrite this business today. We don’t have specific numbers but our best guess is that just about every entrepreneur has had to go through the painful exercise of draining their bank accounts and maxing out their credit cards to get their businesses started.
Even the suggestion that you’d prefer not to touch your savings or put yourself into personal debt is ridiculous. It’s going to happen, and honestly, it’s sort of going to suck. But it’s the price we all pay for building our dream company.
Credit Lines
Beyond personal credit cards, there are quite a few different types of credit lines accessible to new businesses without much traction. This could be a store card from Staples or something more personal like a Home Equity Loan.
Even if you decide not to use your available credit lines, you should absolutely explore every option and understand what is available. You may find that the $50,000 you need to remodel a house you want to flip can be covered by Lowes, not your local bank.
If you’re interested in business credit, you can call us at 1-888-391-7096 to learn how you can build your business credit and get the funding you need by following a simple, proven path.
Crowdfunding
The latest craze in early funding is called Crowdfunding, and it involves posting your investment opportunity online and having scores of individual investors pool money to fund your idea.
Crowdfunding tends to work for relatively small projects that need less than $10,000 and 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.
Affordit.com
We would be terrible entrepreneurs if we didn’t at least mention our own site, Affordit.com, which was specifically designed for entrepreneurs looking to help smooth out the big costs of setting up an office – like purchasing desks, chairs and laptops.
Affordit grants new and small businesses a small line of credit that they can use to buy common office equipment and pay for it over a short period of time – usually less than six months. It’s not the same as a big new lump of cash but it’s specifically intended for entrepreneurs like you and could help some of your cash flow issues as you get started. (OK, end of plug.)
Summary
Bootstrapping is the way of life for entrepreneurs. For every great company (even the funded ones) there is a great story about how the Founder leveraged some form of Bootstrap Capital to get the company out of the gates.
There’s a good chance that your company will never attract (or need) outside funding, so if nothing else, Bootstrapping should be your primary concerned when it comes to funding your new venture.
Remember the best outcome is not needing more capital to begin with. Wouldn’t that be nice?