16 Dec 4 Pros and Cons Of Bootstrapping Every Entrepreneur Must Know!
Every aspiring entrepreneur has to find a way to fund their company or idea. The challenging part is finding the right business model for it. There are many ways to raise money for your business and they include; bank loans, venture capital, private equity and the most common one of them all, bootstrapping.
To put it simply, it is the process starting your business with a limited number of resources. In other words, you have got yourself quite the mountain to climb. It is hard, but it is by far the best option for startups. Still, like any other method, it comes with its share of ups and downs.
It is not to stop you from bootstrapping, but to give you a clearer concept on how you should approach it.
- Complete Control
Every bootstrapping business has control over its destiny, which means that you do not have to answer to any bank, VC or any outside imposed board of director. Some of these outside investors may have objectives that are different to those of your own.
The exit strategies between the founders and investors even become difficult when it is time to sell the company. That is why you are the one with the keys to the business and no one else.
- Better Evaluation Of Your Company
Your company will have a better evaluation if you acquire more data and customer traction for your product when seeking outside capital. If you have a good evaluation, then this will reduce the amount of equity you have to give up when looking for capital. You will be allowed to keep your equity and raise a decent amount of capital.
- Better Focus
By bootstrapping, you will also be able to pay close attention to the needs of the customers. Apart from that, you will also be able to focus on the production of your flagship products and enhance core competencies of the business due to less outside influences.
- Early Creative Control
Bootstrapping allows you get an early advantage in the creative department of your business before you get to the point of juggling too many minds. But that is before you are in charge of what goes where and why.
- Terrible Beta Product
Of course, every good investor would like to see a sample of what your company has to offer. It is an essential prerequisite for drawing future capital for your business. Unfortunately, in most cases, the beta product is not very well thought out or designed.
As a result, this will have a direct impact on the company’s long-term performance.
Undercapitalization is one of the biggest reasons for business failures. It is another way of saying that you do not have enough money to grow your company or put it in a proper sustainable phase. You had best have a plan to save up and ensure that you do not invest too much.
- You Will Work So Much But Earn Little
Seeing as how you are starting from scratch and are not a household brand yet, you can’t expect to work and be paid handsomely for it right away. With that in mind, you also cannot expect to hire employees with the little money you have at the moment. You could be paying them more than what you earn.
- Hard To Make Connections And Network
Sometimes, when starting a business, you have to be in touch with the right people. That is why there is something known as networking. VCs and other well-connected angels can out your novice business with the right people, who can then bolster valuable partnerships, give your visibility and open up crucial markets.
About Writer: Scarlett Erin is a Business Consultant and a Content Creator at www.assignmentstar.co.uk. She takes up blogging as a way to interact with budding entrepreneurs. Her other interests include music, rugby, and hiking.