What Is Bootstrapping?

If you’re thinking about launching a startup, you might think that you need to raise funds, and fast. But the truth is, for many founders, the first real funding comes from something much easier to access: their own bank account.

If you’ve heard the term ‘bootstrapping’ before, that’s what it refers to.

Founders investing their own money in their own ideas before they speak to investors, get customers or build any traction at all.

So, what actually is bootstrapping? How does it work and why do founders fund this way? Here, we break it all down.

What Is Bootstrapping?

Bootstrapping is a term used to describe when a founder uses their own personal savings, money from family and friends or small customer revenue to fund their business. It’s used for very early stage businesses, many times before they have enough revenue or traction to speak to external investors.

When founders are bootstrapping, they are working on tight budgets that focus on building the business and generating income. Think of it as the backpacking of the startup world; it’s lean, nimble and as cheap as possible.

How Bootstrapping Works

Bootstrapping doesn’t look the same in every situation, but generally founders lean on a few different streams of money, these include:

Personal funds, usually from savings, other work or credit cards.

Customer revenue or early sales.

Money from family and friends, usually in exchange for equity at a later date or a promise of repayment.

Business or personal loans.

Another key element of bootstrapping is that founders work hard to keep operations lean. Instead of a fancy office, they might use their home and instead of big teams, they will lean on friends or freelancers. May times when bootstrapping, founders might also forego a salary.

Why Do Founders Choose To Bootstrap?

Finding investment for your business takes time and proof of concept. And for many early-stage founders, they may not have enough ‘proof in the pudding’ to speak to investors just yet.

Additionally, raising investment also means giving away some form of ownership and control. As soon as they put money in, investors want to be involved in the business, which is a big responsibility for founders to take on.

But mostly, founders bootstrap because really, they don’t need that much capital to get up and running! Many businesses are happy keeping costs low in the early stages, and growing too fast can sometimes be more destructive than going slow and steady.

Famous Companies That Bootstrapped First

Want some proof that bootstrapping works? Well, we have it for you.

In fact, some famous companies that bootstrapped first include:

GoPro: Nick Woodman launched GoPro using his personal savings and a $35,000 loan from his mother. 14 years later, it went public at a $2.96 billion valuation. (CNBC)

Mailchimp: Mailchimp was a bootstrapped company that grew without raising any VC funds for 21 years. It was later acquired for a huge $12 billion.

Coca-Cola: One of the biggest companies in the world started by being bootstrapped by founder Dr. John Pemberton, who initially sold it as a syrup. It was later acquired by Asa G Candler who grew the company from there.

Minecraft: Minecraft started as a side-project that was ‘bootstrapped’ by its creator Markus Persson, who self-funded it instead of relying on investors. The game was sold through a website direct to consumers at the time and was later sold to Microsoft for a huge $2.5 billion.

So there you go, if GoPro, Mailchimp, Coca-Cola and Minecraft can do it – why not you?

So, Is Bootstrapping Right For You?

Bootstrapping isn’t easy. It requires founders to be flexible, nimble and keep a close eye on the numbers. But it can also be a great tool, allowing startups to grow and develop without relying on external funding.

And, if they eventually do decide to raise investment, they can do it from a position of revenue growth, a community of customers and traction behind them.

For founders looking to dive in head first, bootstrapping might be just the right route to get going.