October 15, 2021

Successful Bootstrapped Companies

By b3stpr0f1tfu

Building a strong business with a sound foundation and value takes time and many bootstrapped companies have achieved this by providing amazing products or services. Eventually, they reach the point, through solid strategies and sustainable profit, where the company grows to have a powerful position within their industry.

Advantages of Bootstrapping
Low Cost of Entry
Bootstrapping is cheap—working with your own money means that super-efficiency is necessary. You are more aware of the costs involved in the day-to-day running of the business and start operating your company on a “lean” business model.

Having to solve problems without external funding means that bootstrappers have to become resourceful and develop a versatile skill set.
You Call the Shots
Without any external investors (as only founders are investing in the business), the founders’ equity and control over the company is not diluted. The founders are their own bosses and are responsible for all crucial decisions in operating and growing the company. This can ensure that the business is moving in the direction desired, according to the founders’ vision and cultural values, without any investor influence, and when successful, ultimately means keeping the profits for themselves.

Concentrate on Building the Business
The fact that raising external finance is not an issue, which can be a very stressful and time-consuming task, allows for full concentration on the core aspects of the business such as sales and product development. Additionally, due to the limited cash supply—alternative options, such as factoring, asset re-financing, and trade finance—become part of the norm with bootstrapping.

Building the financial foundations of a business, on your own, is a huge attraction to future investors. Investors, such as banks and venture companies are much more confident funding businesses that are already backed and have shown promise and commitment by their owners. Business glitches can be rectified with growth, such as product and service—therefore, perfection at the launch of the business is not a necessity.

Disadvantages of Bootstrapping
Cash Flow Issues
Because of the lack of capital and cash flow, problems can arise if a company doesn’t generate the capital it needs to develop products and grow. An entrepreneur’s lack of experience and know-how—particularly in the fields of business acumen and leads—can cause stagnation and disaster.

Equity Issues Among Multiple Founders
When there is more than one founder, equity issues can become a problem. If there is an imbalance between the founders regarding the amount of capital invested, experience, or time, this could cause disharmony as well as adverse tax consequences.

Commingling company funds and personal funds can defeat one of the major reasons to incorporate or set up an LLC. A record of founders’ capital provided to the business will help alleviate this problem. Also, consulting an attorney is beneficial for company startups.

Risk of Failure Can Be High
Although bootstrapping allows for greater control and the profits are yours, it also involves much more risk where losses and failures may be experienced. One reason some bootstrapped companies are unsuccessful is due to the lack of revenue: Profit is not sufficient to meet all costs.

Starting a business most often requires very long hours of work just to keep your business going, let alone the fact that in many cases, there is no paycheck to go with this effort. All problems are yours, as hiring staff is not usually applicable; therefore solutions are limited to your ability or the abilities of friends and relatives who might be willing to help.

Personal Stress
You’ll need to become adept at handling stressful situations that might crop up if you finance your company using debt to another person, such as family members and friends. Understanding what is expected of you and communicating this clearly to others can help you cope with the stress of the situation.

Many of the successful companies that we see today had their humble beginnings as a bootstrapped enterprise. Examples of these include:

Dell Computers (DELL)
Facebook Inc. (FB)
Apple Inc. (AAPL)
Clorox Co. (CLX)
Coca Cola Co. (KO)
Hewlett-Packard (HPQ)
Microsoft Corp. (MSFT)
Oracle Corp. ( ORCL)
eBay Inc. (EBAY)
Cisco Systems Inc. (CSCO)
SAP (SAP)

Obviously, there are entrepreneurs behind the scenes of successfully bootstrapped companies, such as Bill Gates, Steve Jobs, Michael Dell, and Richard Branson.