So you might have heard the term "bootstrap". It usually is a simple phrase bootstrap startup. A bootstrap startup is a new or young endeavor with no outside investment capital and usually too little investment from it's founders. In this scenario usually just the bare minimum is in place to have a business or the business is in such an early stage that the basics are being worked out in turning "the idea" into "the business".
There are numerous pros and cons to starting something up as a bootstrap. Below are some of the biggest ones.
- Your business grows slowly. You are usually self funded by your own savings or credit cards or reinvesting profits back into your business. Profit reinvestment usually means a small business will be capped at 30 to 40 percent annualized growth over time (if your lucky).
- The business tends to be forced into "peaks" and "valleys" with a lack of consistent growth. Because there are so few people there tends to be a focus on sales and once the sales are achieved then a focus on servicing the new sales. This is very common in a services business. Cash flow (monies in and monies out) tend to be lumpy as well. Companies that sell tangible goods tend to suffer from being overstocked to understocked with goods and creates peaks and values in cash flow as well.
- Diversifying the business is very difficult and you tend to have to be narrowly focused. You just don't have the people, time or money to do it.
- It can lead to major founder burn out.
- You lack that outside influence pushing you on and keeping you focused on cashing out.
- Typically the biggest chunk of your business you'll have to give up for outside investment is at the very beginning of your company. Your short term sacrifice will lead to a much richer end if you figure out the success path of your business.
- If you've proven your market, your product/services and your business model you'll be much more attractive to investors who typically prefer to fund the growth phase of companies. That means you'll get more money and give up less of your ownership.
- You have complete control of your company with only as much outside influence as you invite and allow. This means when you do come into decent profits you can pay yourself whatever you want. You can determine how much time you spend on the business. You can decide how, when and if you want to sell your business at all.
- It's one heck of an ego boost if you succeed and do it on your own. Think Frank Sinatra "I did it myyyyyy waaaayyyyyy!"