Updated: Dec 5, 2022
Bootstrapping describes a situation in which an entrepreneur starts a company with little capital, relying on money other than outside investments. An individual is said to be bootstrapping when they attempt to found and build a company from personal finances or the operating revenues of the new company. Bootstrapping also describes a procedure used to calculate the zero-coupon yield curve from market figures.
Bootstrapping is building a company from the ground up with nothing but personal savings, and with luck, the cash coming in from the first sales. The term is also used as a noun: A bootstrap is a business an entrepreneur with little or no outside cash or other support launches.
Bootstrapping is a common-sense approach to building a business by spending as frugally as possible at the launch and using the business’ assets and possibly your own personal assets to fund the early start-up stages.
Bootstrapping may also be used at later stages of a company’s development to stretch cash investment and funding to a time when the business generates sufficient cash flow, or until it can attract additional equity investment or borrow from a traditional lender. Experts say that a significant majority to of start-ups (75% to 85%) use some form of bootstrapping to help finance their business. With planning, bootstrapping will be only one stage in your business’ development.
Key Characteristics of Boot Strapping:
1. Bootstrapping Is Not a Source of Funding.
2. Bootstrapping Is a Discipline.
3. Bootstrapping Is a Journey and Never a Sprint.
4. Bootstrapping Is About Priorities.
5. Bootstrapping Is About Maximising Your Output.
Four Phases of Startup Boot Strapping:
Phase 1: Start. The initial discovery phase of your idea. Time is your biggest resource and keeping expenses low is your greatest challenge. Key Activities and Questions to be answered
1. Conduct customer interviews
2. Find your “secret sauce” – how/why your product/service is different
3. Create prototype or minimal service to communicate your concept
4. Find mentors and advisors
5. Write your initial business plan
6. What meaningful problem are you solving?
7. Will anyone be interested in your solution to the problem?
Phase 2: Validate. Validate that enough people are interested in your product or service to make a market. Key Activities and Questions to be answered
1. Refine your core features
2. Grow your initial user/customer base
3. Implement analytics to track key metrics
4. Establish outsourcing or hiring
5. Acquire first paying customers
6. Adjust your product to the market
7. Will enough people exchange money or attention for what I have to offer?
8. What are the core features and benefits of your product or service?
Phase 3: Optimise. Smooth out the rough edges of your business model and fine-tune the processes. Experiment now while the costs are still low. Key Activities and Questions to be answered
1. Perfect the customer experience
2. Improve the sales process
3. Refine your value proposition
4. Adjust the sales funnel
5. Refine initial business plan
6. What does a repeatable sales process look like?
7. What are the key issues preventing growth?
Phase 4: Scale. Drive growth aggressively while maintaining excellent quality and service. Key Activities & Questions to be answered.
1. Aggressively increase sales
2. Perfect back-end processes
3. Implement processes and procedures
4. Establish functional departments
5. What do you expect from your team?
6. What are the critical high-level processes?
7. What do your key metrics tell you?
Example of Boot Strapping Successful Startup Companies
Software development platform company, GitHub, launched as a bootstrapped Startup in 2008 and was bought by Microsoft for $7.5 billion in 2018.
Sara Barkley recently sold Spanx for $1.2 billion. She bootstrapped the business (raised no money) after starting it with a few thousand in savings. She grew the business with no debt on the balance sheet. Sara is now one of the richest women on the planet and is officially a billionaire again. At age 41, Sara became the youngest self-made woman to join Forbes’ World’s Billionaires list in 2012, earning her a spot on the cover.
Stay tuned for more in startup valuation series!