Bootstrapping is….

Bootstrap financing, derived from the aged expression - “to pick yourself up by your bootstraps;” is a saying which means to improve by one’s own efforts.  Traditionally when applied to business and entrepreneurship this unmistakably meant to start a business on one’s own abilities and finances.  However, the idiom has progressed to gain a more worthy meaning in addition to self-started ventures which is “Lean start-ups.”  More worthy because we live in an age where the right business can be started for less capital than ever before.  Bootstrapping can also pertain to cutting spending within an existing business or personally financing an existing business like Richard Branson. 

Compared to using venture capital, boot strapping can be beneficial as the entrepreneur is able to maintain control over all decisions. On the downside, however, this form of financing may place unnecessary financial risk on the entrepreneur. Furthermore, boot strapping may not provide enough investment for the company to become successful at a reasonable rate.  In other words unsuccessful ventures can cause great personal loss where successful ones can outgrow themselves too quickly. 

A boot-strap venture means that control of the enterprise is solely on the entrepreneur themselves.  In the following, the effect bootstrapping will have on each stage of strategic plan of a new ventures will be discussed.

Conventional strategic planning in business involves

  1. Creating a concept by asking:

                          i.    “Why do we do it?”

                        ii.    “What do we do?"

                       iii.    "For whom do we do it?"

                       iv.    "How do we excel?"

  1. Testing the concept

                          i.    SWOT

                        ii.    Setting objectives

  1. Executing the concept.

                          i.    Meeting goals and objectives

                        ii.    Adaptation

                       iii.    Future planning

Creating the Concept

                        Every business must start with “Why.”  In business there’s a concept known as the “Golden Circle” also known as “Purity of Intent”. 

In sales and in industry beginning any venture without knowing the why is a road to failure.  Every business which creates revenue knows what they do - Call them “Whats.” The  “Whats” may even be good enough to know how they do what they do but without a “why” they really don’t know what they are doing at all.  The really great businesses know the “WHY. - Call them “Whys.”  Finance, wealth or notoriety are not “Why’s,” they are outcomes. 

If outcomes are the “Why,” you are starting with “What.” 

Start with Why

Don’t confuse the notion of “Starting with Why” for “finding your bliss.”  “Finding your bliss” is pop-psycho babble which implies a banker who paints on the weekends should abandon his successful career to pursue Painting as an entrepreneurial venture.  Knowing your “Why” means in the Banker would use his skills and knowledge to start a successful venture in Art itself by creating an art sharing website or community art center. 

A marketing message from my company might sound like this:

“We support career services departments by providing an online social networking platform which streamlines workflow, tracks interactions with students, and ultimately works to connect Student Job Seekers with Accessible Employers.

It’s simple to use and it is profitable for the school.

Would you like to sign up?”

That's how most marketing is done, that's how most sales is done and that's how most of us communicate interpersonally. We say what we do, we say how we're different or how we're better and we expect some sort of a behavior, a purchase, a vote, something like that.

Here's how my company communicates using “Purity of Intent”:

The biggest challenges of the career services department are staying connected with students and creating meaningful associations with employers for placements. Everything we do, we believe in empowering Career Services Departments in connecting students with employers for placements.

The way we support Career Service Departments is by providing an online social networking platform.   It’s simple to use and profitable for the school; it works by streamlining workflow, tracking interactions with students, and ultimately connecting Student Job Seekers with Accessible Employers.

Would you like to sign up?”

We do it every day. People don't buy what you do; they buy why you do it. The goal is not to do business with everybody who needs what you have. The goal is to do business with people who believe what you believe.

My eventual point is Bootstrappers are “Whys.” It can be said with safe conjecture a financial bootstrapper or a business which is using bootstrap financial practices knows their “Why.” 

When there is a powerful “Why,” financial bootstrapping not only becomes necessary but becomes joyfully undertaken. 
Testing the Concept

Bootstrappers are not in a position to spend time and money on R&D; they are certainly not able to test market trends to find the right price point.

Today there are digital solutions available to the Bootstrapper such as eBay, Amazon, Adwords and the internet itself.  Bootstrappers delving into a product space can test prices on eBay using the auto bidder to find how high customers are willing to bid for a certain type of product or service. Instead of investing precious personal resources, Bootstrappers can launch Google Adwords campaigns for pennies to find valuable insight into which words, phrases and concepts customers will key into. 

Another option is clever, personal research.  Using competitive SWOT analysis a shrewd Bootstrapper can find ways to identify circumnavigate expenses.  Investigate competition through customer research, secret shopping and professional inquiries. 

In some cases it may be required to simply plunge right in.  This may be necessary for a new product or the simple lack of resources, whatever the reason the Bootstrapper needs to be prepared to dive in without the safety vest.

 “In business, Bootstrappers typically rely on savings, early cash flow, and penny-pinching to fund startup companies, rather than seeking external funding in the form of loans or investments. When bootstrapping companies, founders try to line up customers and suppliers early while taking little or no capital for themselves.

Lowering expectations can also help bootstrap a startup…Take your big idea and pare it down into a series of ideas, then execute on the very best portion and activate other parts later…Most of the time, it's the execution of a business idea, rather than the idea itself, that determines whether a company becomes successful.”  (Klein[1])

Executing the concept

After creation and testing the business is ready to start; in order to start most business are ready to seek and utilize capital. Now the question comes in as whether to personally finance or seek venture funding – to capitalize or to bootstrap.  In order to identify the difference between a Capitalized Entrepreneur and a Bootstrapper is clear – Scope.  Having conducted the research above through Intent, SWOT and Objectives the scope should be clear for the financial needs of any start-up.    Once the scope is defined the financial structure and needs will need to be aligned to the size of the business opportunity. 

In addition to personal savings there are 4 ways to personally finance an enterprise. 


The first and best way to finance is sales and customers.  Sales can be made before production and sales can be made though production, but sales cannot be made with the acquisition of consumers. 

Trade credit through suppliers

After customers have been secured there will be a need for higher production and the possible need for suppliers.  “Trade credit is one way to maximize your financial resources for the short term. Normally, suppliers extend credit to regular customers for 30, 60 or 90 days, without charging interest. However, when you first start your business, suppliers will want every order COD (cash or check on delivery) until you've established that you can pay your bills on time. While this is a fairly normal practice, in order to raise money during startup, you're going to have to try to negotiate a trade credit basis with suppliers. One of the things that will help you in these negotiations is having a written financial plan.”([6]

But using trade credit on a continual basis is not a long-term solution. Your business may become heavily committed to those suppliers who accept extended credit terms. As a result, the business may no longer have ready access to other, more competitive suppliers who might offer lower prices, a superior product, and/or more reliable deliveries.

Asset Liquidation or Asset Based Loans. 

Bootstrapper must useall available resources to keep the ship afloat. 

 “Billionaire entrepreneur Richard Branson got an early leg-up with a loan from his aunt. Still in his teens, he already had a few ventures that had gone south—growing Christmas trees that were eaten by rabbits and raising parakeets with reproduction rates that far outpaced demand. But he felt good about this latest venture. And things did work out for Sir Richard. He repaid Auntie Joyce—with interest.

Branson was still in his teens when he started selling “cut-out” records from his car to retail outlets in London. That led to his own record store and then the Virgin Records label in his mid-20s. Through the 1980s, Branson expanded the record label and made the leap to establish Virgin Atlantic Airways, going head-to-head in competition with British Airways. He eventually would sell Virgin Records—“the family jewelry”—to EMI to keep Virgin Atlantic afloat amid the competition.”(Ocker[3])

An extreme example but it illustrates how the Virgin Brand was perpetuated by Virgin resources.  Bootstrappers will sell their home to fund their business. 

Asset based loans are a method raising funds through the very assets the business will be build upon.  This means if the loan is not repaid the bank will own the asset of which the loan is based on.  This can be land or real estate, inventory, accounts receivable machinery or equipment or even the intellectual property which propels the business large or small.  Before becoming Netherworld games midway games took out a line of credit and secured it on the Mortal Kombat game.  When the company went bankrupt they had to battle WellsFargo for the rights to characters, stories and the even the game itself. 


Bootstrappers are aware of every penny coming and going from their business because it is their money. 

“By understanding that economizing does not mean saving money, but investing it wisely, guerrillas test their investments on a small scale before plunging headlong into any kind of marketing. They have no fear of failure, providing the failures are small ones and knowing that even one success in ten tries means discovering a path to wealth and profitability. They know in their hearts that money is not the key to happiness or success, but that enough of it enables them to have a key made. Real frugality is more about priorities and results than just saving money.”(Arora P[4])

Bootstrapping companies need to find every method to reduce their cost and find shortcuts.  Whether its in logistics, production or daily ops Bootstrappers separate themselves as masters of thrift so as to optimize bottom line profits. 

When to seek Venture Capital

As previously stated the way to gauge the need for venture capital versus bootstrap method is the measure the scope of a business and its objectives. 

Some businesses will grow at a balanced rate to maintain self-sustainability; some will hit snags through inexperience, lack of contacts or lack of resources.  Entrepreneurs can get in over their heads when they find themselves in dept or out of their depth.  When this happens Venture Capitalist are the vehicles for success. A business can only grow so much before a new customer base needs to be established or production cost need to be trimmed.   VC’s are sought not just for financial backing but for expertise and influence as well. 

“Before diving in, we must first define bootstrapping and venture funding. In the context of this post, bootstrapping refers to the means in which a startup supports itself financially so as to maintain a significant stake of ownership equity in their company. That is to say, the startup seeks to become a self-sustaining business as quickly as possible. In some cases, doing so might require the startup to raise a modest sum of capital through angel money or family, friends and fools (FFFs) in return for a modest sum of equity. Conversely, venture funding implies a startup is willing to accept larger quantities of capital (i.e. venture capital) often in return for larger quantities of ownership equity. There are different stages of venture funding (seed round, series A round, series B round, etc), all of which are done with the interest of generating a return through an eventual “realization event” such as an IPO or sale of the company.” (Crescenzi[5])

In addition to businesses who need assistance in a space or business sector, the types of business which would need to seek venture capital are those who would seek a customer base on a national or global scale.  In order to reach the next level or even launch the businesses will need to seek investments.. 

The most important factor to consider when seeking Venture Capital is giving away equity.  Most entrepreneurs never consider the impact of shared ownership.  This goes all the way back to inception and considering the “Why.”  Bringing in Shareholders affects decision making and “Why’s” may not always align.  Along with their capital, expertise and influence the Venture capitalist will have a say in strategy and direction.  The VC is looking for the ROI and many times they are looking for the fastest way to get there. 



Bootstrapper is a uniquely American approach in the business world.  The independence of it as well as the Fly-by-the-seat-of-your-pants mentality it takes is a trait necessary to succeed as a Bootstrapper.  The risks are great but the rewards, even the lesson learned from failure, are greater.