Bootstrapping is a very common term you see thrown around in the startup world. Those new to the startup world have probably asked themselves, what does bootstrapping a startup mean?
In simple terms bootstrapping a startup just means not relying on outside investment when starting a company. The startup will typically rely on the founder's personal finances to pay off initial operating expenses.
Origins of Bootstrapping
Bootstrapping originates with the phrase "pull yourself up by the bootstraps", which HuffPost describes as nonsense. It's an impossible feat when taken literally, and its initial meaning was more literal, but now its essence describes elevating yourself through your own hard work and willpower.
Bootstrapping is a natural progression from this phrase. It is a more specifically applied usage of pulling yourself up by the bootstraps that pertains to startups only.
The Opposite of Bootstrapping A Startup
The first assumption people make is that investment is directly the opposite of bootstrapping. This is true, but only in the first phase of startup creation. A bootstrapped company can spend time running a lean operation, show product market fit, start scaling and then identify that investment money may help them scale at a much higher rate. It is kind of a grey area, but I would identify the opposite of bootstrapping to be pre-seed or angel investment; Investment that happens very early in the process so that the founders are putting less personal risk and assets on the line. A bootstrapped company may choose investment down the line or they may choose to grow with potential operating revenue they have already started gaining.
The Mindset Differences Between Bootstrapping and Investment
If you dig into the personalities of people who choose bootstrapping versus investment you may see some patterns emerge. Typically I see people who bootstrap startups as self-driven individuals who love the process of the 'grind', don't want to share ownership of their ideas with outsiders, and enjoy shouldering the risks associated with it. Investment focused individuals want quicker turnarounds, to share risk, and appreciate the go big or go home strategy.
Bootstrapping a startup often brings an assumed structure to how you are going to run your business early on. Since a founder's livelihood is more intertwined with a bootstrapped company, how they approach day-to-day work often changes. Your goals are typically to operate at the lowest amounts possible and try to drive revenue sooner than later. Since a bootstrapped company has not diluted ownership, it also means that decision-making power has not been diluted. Bigger, company-impacting, decisions can happen much more quickly and without oversight. There are of course pros and cons to this. The formal business structure and legal requirements are often much looser in this environment.
An investment backed company can take more time and even undercut markets at a loss while living off the investment. They also have to answer to their investors about big decisions, which has the potential to slow things down but can also make those decisions much more impactful and useful. When dealing with investment you should always consult a lawyer which means you need to define more company structure.
Should You Bootstrap?
Depends on your product. Does it require a ton of capital for it to even be made? Does it require money to scale at all? If you can confidently say no then absolutely you can bootstrap your startup.
I have bootstrapped two startups, one successfully, and I can without a doubt say that the experience was invaluable. You learn through countless mistakes and really feel their impact. You come out the other side much stronger and as a much better founder. That being said, my goal moving forward is to be bootstrapping only in name. Meaning my previous ventures became worth enough that they can bankroll my new ideas so that I keep the benefits of ownership, but also get the benefits of being able to scale quickly that investment often gives.