What is "Bootstrapping?"
The first in our series on fundraising topics
TL;DR
Bootstrapping is the process of building a company without raising money from outside investors. It often requires some personal financial investment or forgoing a salary for a period of time.
Working closely with your customers, suppliers, and partners to help “fund” the business is key to preserving cash!
Founders who want to retain control over their company or build “lifestyle businesses” often choose this route.
Trying to decide? Ask yourself: would you rather be king than rich?
What is Bootstrapping?
Bootstrapping means starting a company without external funding. A simple definition for a complex practice.
How Does Bootstrapping Work?
Bootstrapping is more art than science, but there are tools you can use.
Self-Funding
Using personal savings and credit cards is the most common way to fund a business. Know your limits and personal risk tolerance. Write them down and stick to them. Talk to your family and partners about how much personal capital you’re willing to invest in the business. Also, discuss how you’ll handle essentials like health insurance.
Consider whether you want to start the business as a side hustle while keeping a full-time job. Similarly, decide if freelancing or consulting on the side could help fund your business. If you have a co-founder, ensure you're both clear on how many hours will be dedicated to the business vs. consulting. Some very successful companies have been born from problems founders encountered while consulting for clients. It may not be glamorous, but it can be effective.
Customer Funding
Revenue from customers is one of the best ways to fund your company.
Try to get customers to prepay for the product you're building. Use waitlists, scarcity, and discounting to encourage excited customers to give you cash before your product is ready.
Crowdfunding is one approach. Platforms like Indiegogo or Kickstarter allow current fans and future customers to pay for exclusive discounts, merchandise, product access, and more—all before you even launch.
Match your billing cycles with your customer payment cycles to give your company a financial cushion. For example, if you’re a solopreneur with a client who pays within 15 days of receiving an invoice, ensure your credit card and bill payments are due 30 days or more after that. You can often adjust your credit card due dates, but note that changes usually take effect the following month. This strategy can help reduce the stress of paying bills on time while avoiding interest.
Supplier Funding
Suppliers, manufacturers, and vendors also want your business, and they can help “fund” it without making a direct investment.
First, take advantage of any available discounts. Annual or prepay options may save capital if you have the cash upfront. Other times, paying slightly more in exchange for keeping more cash on hand can be worth it.
Second, think of payment terms as a form of funding. Here are a few leverage points:
Ask for the longest payment terms possible. Some vendors offer 30, 60, or even 90 days to pay a bill—interest-free. This gives you more time to earn revenue from customers before paying your suppliers. If you're building a physical product, try negotiating payment terms that start when the item reaches your doorstep, not when it ships.
Lastly, there’s "using the float." Phil Knight discusses an extreme example of this in his memoir Shoe Dog. In Nike’s early days, he would mail checks to suppliers on Friday, knowing customer payments wouldn’t arrive until Monday. By the time the check was cashed, the funds were already in his account.
Why Does Bootstrapping Matter?
Bootstrapping gives founders control. Raising outside money means giving up a portion of your business to investors.
Starting a business is tough, and bootstrapping has its trade-offs. It gives founders full control, but it may take longer to build the company. If you want to build on your own timeline, bootstrapping could be the way to go—you can always raise capital later. However, if you can demonstrate that your business can grow quickly, outside funding might be worth considering. Know the trade-offs of each approach and make the decision that best suits you and your business.