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How to BootStrap your New Business
New business owners report that financing a start-up is the most difficult and pressure-inducing part of the business's launch. The worry over taking out loans, finding investors and making everyone happy is often so overwhelming that the start-up never gets off the ground.
A new type of financing, called "bootstrapping" is gaining attention in the business world. Bootstrapping happens when an entrepreneur starts a company with little capital, using only – or mostly – his or her own personal finances and any operating revenues that come in from the new company.
New business owners bootstrap when they want to avoid using venture capital sources to get their project off the ground. The advantages of bootstrapping include the entrepreneur's ablity to to maintain control over all the decisions that the company takes.
The disadvantages of bootstrapping involve the financial risks that the owner places on himself as he risks his personal finances on the project. Additionally, bootstrapping may not give the owner the capital that he needs to properly launch the new company.
Options for New Business Financing
New business owners generally finance a start-up in one of four ways:
Each option carries with it pros and cons. New businesses that develop through bootstrapping are not, as a general rule, as quick to turn a profit. However, the method offers a steady way for the new business to start bringing in revenues.
In addition, once investors see that the business has a good chance of being a success, they are often more eager to help out with future loans. They will be more interested in getting in on the ground floor to help support future investments without the demands for as big an involvement in running the company.
Growing a Business Through Bootstrapping
Through bootstrapping the business owner can focus on carrying out his business plan as he sees it as he builds relationships with future partners, customers and others in his field.
Bootstrapping the initial stages of the business can carry over to bolster a business's future growth. When a business doesn't rely on other sources of funding in its initial stages, the business owner doesn't need to focus on the dangers that can come when the project's ownership is diluted between investors.
Since the entrepreneur's debt comes from personal sources, he doesn't need to issue equity, A new owner who isn't under pressure to get the product right the first time and become profitable immediately has the freedom to experiment with the brand and create the product that he envisions. The owner can focus his energies on perfecting the business through focus groups, market research and other methods.
Some examples of successful companies that developed through bootstrapping include:
Sara Blakely was getting ready for a party when she discovered that she couldn't find a form-fitting piece that wouldn't show lines under her white slacks. She cut off the feet from her control top pantyhose and the Spanx company was born. Blakely used all $5000 of her personal savings to launch Spanx. To save on legal fees she even wrote the application for a patent and filed it herself. Blakely still owns 100 percent of the Spanx company and has never taken any money from outside investors. Spanx sales in 2016 totaled an estimated $400 million.
Craig Newmark launched his ad site for online classifieds in 1995. Craigslist started as an email newsletter that was designed to keep friends updated on San Francisco events. Word of his list spread and people started to ask him to list sale items, post jobs and arrange other types of deals. For the first years of its existence Craigslist was Craig Newman's personal project. It developed organically until Newmark incorporated it in 1999. In 2004 eBay paid $32 million for a 28 percent stake in the business. He didn't take any outside money until 2004, when eBay paid $32 million for a 28 percent stake in the company but Newmark ended up buying back the shares. Craigslist now tops $690 million in revenue and hosts notices from big name promoters such as the Grande Vegas casino.