Bootstrapping; a posh way of saying I am broke

I often ask start ups how they get funded and some reply that they are bootstrapping. Despite having an MBA, I hate jargon and I hate people trying to be clever. Bootstrapping is a new word (in terms of the current meaning) but the idea that you start a business with your own money is as old as business itself.

The danger with entrepreneurs stating that they are bootstrapping (and all the accompanying courses that go with it) is that it gives the impression that bootstrapping is a planned strategy. I am sorry but I think that is wrong.

To have a strategy that says we have no money is not right. Some of the businesses that I am involved with have a plan of not raising any external investment. The decision was based on looking at the costs we needed to start the business and gain traction and then comparing that to the resources we already had. We called it self-financing not bootstrapping.

The other problem with bootstrapping is it can sometimes force you into making the wrong decisions for the wrong reasons. There comes a point where a business has to have money to expand. I have lots of examples where businesses are being held back because of cash. The honest companies admit that they need cash to allow them to get the growth path they need going. Others will somehow pretend that their strategy is to bootstrap.

Bootstrapping (I really hate the term) gets businesses thinking about the wrong thing straight away. Are you interested in surviving or going for growth? The two things are not always mutually exclusive – but they often are.

I understand the need to preserve resources until you achieve proof of concept; that is a different thing altogether. I will often not want to back a company until at least one person has bought the solution or I am convinced by its merits. But the companies that I have backed pre-revenue such as www.mydeco.com were never in the bootstrapping mould. It was obvious they were going for it, and going for it big.

I guess my motto would be, if you are going to fail, fail big. Do not go out with a whimper. I am afraid that Bootstrapping leads to that whimper…….

08
Oct 2010
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  • http://wooshii.com Fergus

    Don't know if I agree with you here perm. Boostrapping for me describes a business outlook more than just how you are funded. It is about an attitude. (Its woird used a lot in recent years as the advent of tech and web app business mean it is now possible to start very successful business on 20k to 30k)

    “gives the impression that bootstrapping is a planned strategy”
    I think it should be. Even when you have cash I think boostrapping the idea gives you a huge amount of insight.

    “Bootstrapping (I really hate the term) gets businesses thinking about the wrong thing straight away. Are you interested in surviving or going for growth? “

    Well both, (I love the term). Boostrapping gets you to the core of a business. Nothing focusses the mind more than the need for survival cash. In doing so you build a product that is actually market ready, that people will pay for and that you can deliver. Once you have that any external cash allows you to build on the above tried and tested results.

    One of the ways Caudwell used to work was to role out ideas on next to no cash. If people could make them work then fantastic then they got behind it with cash. Companies like 37 Signals and our own Mike Sikorsky are big advocates of bootstrapping as it takes entrepreneurs from product development to revenue generation quickly. Where is the incentive to quickly get to market, test and iterate when you've got $2M in the bank?

    I remain a huge fan of boostrapping as a strategy so long as it is exactly that, a strategy, a way to test the market and the product – then you need growth and that often means cash.

  • http://twitter.com/PaulH Paul Henriques

    Agree with Fergus here. “Bootstrapping” trains you to be smart with the resources you have and to grow organically. It's also a reaction (for tech companies anyway) to the dot com crash, where companies would raise ridiculous amounts and then waste it on lavish offices and first class travel. After Bootstrapping, when your business is ready to go for significant external investment, you will have a greater idea of what you need and why.

    And with respect, MyDeco had a “rockstar” (I hate THAT term!) team behind it. They were always going to go big and gain investment right off the bat. An unproven team with the same proposition would probably have had to bootstrap until they achieved revenues or raised a lot less initially.

  • http://twitter.com/weblivz Steven Livingstone

    To me (going through this right now), bootstrapping means having enough money to get something to show and pull in a customer or ten. I am increasingly of the opinion most businesses (esp online) need to charge quickly – at which point you hope you can support yourself.

    To go to the next level though you do need to seriously think whether bootstrapping can take you all the way.

    That of course is bootstrapping cash – harder to bootstrap experience (the other thing you get when you get someone else in!).

    Did i say “bootstrap” enough times!?

  • http://www.andrew-crump.co.uk Andrew Crump

    Not so sure I agree with you Permjot. Why do you see a difference between self-financing and bootstrapping?

    'The other problem with bootstrapping is it can sometimes force you into making the wrong decisions for the wrong reasons. There comes a point where a business has to have money to expand' – But sometimes you don't have a decision to make – bootstrapping for many is a means to an end.

    And I certainly agree with Furgus about focusing the mind. People are constantly amazed at how far we made 5k go with bluefields.com.

    Also there are many of very successful companies that have bootstrapped (most) of the way to success. I am thinking 37signals (ahh Furgus got to that point first too)

  • Permjot

    This is the first time I have had so many people disagree.

    I think I may not have done a good job explaining my position :(

    I totally want to see companies get to proof of concept with very little money.

    I just would like companies to see Bootstrapping as a tactic rather than a strategy. So a 'bootstrapping' test (and Fergus and I do this all the time) is to ask what do you need to achieve with say £50k or £100k.

    Then say – right how can you achieve the same things with £5k?

    This has worked and can work – but as a tactic.

    Does this make sense?

  • http://www.charity-engine.org Mark Mcandrew

    Surely the only two good reasons to launch on a shoestring are:

    a) because you can
    b) because you have no choice

    If you're fortunate enough to not need a lot of funding to prove a concept works, then just get it done for the minimum. It's less of a risk for investors – and you keep more equity.

    We raised just over £100k from a choice of angels – and even gave £25k back to one who proved unsuitable. (Post-money valuation is ~£1m.) We could have raised more and spent more; hired a big-time CEO, etc. but we don't need to.

    At least, not yet… <crosses die=”" fingers,=”" hopes=”" not=”" to=”"></crosses>

  • No

    this blog is a fail you don’t know what bootstrapping is