Thinking of starting an online business without investors? Or just checking out pros and cons of having an investor for your business. It is not an easy choice to make.
Bootstrapping essentially means Starting your online business with little or no money at all. It also means that you are getting started on your own without any investors or venture capitalist firms as such.
A lot of bootstrapped companies earn slowly, invest back the money they gain from their customers and start growing from there. Convertkit for example, started with mere $5000 and grew into a million-dollar company today.
Bootstrapping comes with a lot of pros but few cons.
To begin with, Let’s take a deep dive into the advantages of bootstrapping your online business.
Control on your online start-up
The very fundamental thing at least when you are just getting started online and the most crucial part of your online business is “Who gets to make a decision”. Bootstrapping of course, keeps the control with you. Since you are small but all on your own and without any investors or financial commitments on money that you owe them, decision maker is you.
Did you watch that shark tank episode recently? Yes, the percentage of money they invest in any business idea has to be paid back?. Even if they take risk, the person who got investment money remains accountable and the Shark Tank guys gets to make decisions.
Getting niche
Online business world especially SAAS companies and similar solutions are overcrowded already. I can safely say so for the online marketing world at least, its like 7040 solutions in 2019 from just 150 in 2011. Imagine how confused a buyer can get
Getting niche and in fact, super niche will be crucial for upcoming start-ups. Few things that you can do to get niche in online business.
- Start small with a tight niche
- Try to address a narrow problem within a market niche. It's like find a very painful problem that someone will pay to solve
- On an average 16 months to 24 months is required for a suitable product market fit, so having patience while cash flow starts coming in is important.
- B2C niche is tough nut to crack, try B2B to begin with.
Product focused
You are more likely to stay product or MVP (Minimum Viable Product) focused as you will have to very sure about the product you are building and the real value it brings to your customers.
It's like I want five features but got money for only one, which one is that most important feature or function that is the basis of my online business idea or product.
Discipline
If you like it or not, bootstrapping does force you to spend wisely and with discipline. If you are someone like me, you will only worry about the expense first than looking at your incomes. You will know numbers top of your mind and be laser focused towards your quarterly/yearly/monthly goals.
It certainly makes your more disciplined as every penny counts and you are owner/ solely responsible.
Pace
Once you start focusing on your absolute goals while avoiding the clutter, you will move fast with greater precision. As product or your online business develops, you will move quicker and it gets better over time.
Team Management and Human Resources
You will be forced to hire a small but nimble team. You will approach job descriptions as sales letters and start hiring wisely. Hiring best fit over greatest skills could be your way or vice versa.
Customer experience
Since you are tight on money and investments you will start hearing customers more often while you plan to launch more such new features. Social media listening, blog comments, product reviews and so on are your best bet
Flat organization
You are more likely to have a flat organization with direct supervision and complete visibility of business, finance, operations etc. A flat organization without multiple levels of management ensures quick decision making while you can focus on growth and profitability.
Let’s take a deep dive into disadvantages of bootstrapping your online business
Exact opposite of all of the above is true for disadvantages part but allow me to focus on few important ones that requires attention.
Survival in the long run
If you are funded small by bootstrapped founders, survival in the long run can get tricky. You might not be profitable quickly and end up in growing debt very soon. This takes out of market and thus few changes of survival in the long run.
Scalability
Early on seed investments have great potential to grow you quickly, spend money where it is needed the most without having to worry about debt with growing presence. Your chances of becoming more scalable and therefore attending economies of scale is prominent if you are not a bootstrapped start-up.
Learning from experienced investors
Having serial or seasoned investors comes in with the additional opportunity to learn from your investors and apply knowledge from their real-life experiences. This is much quicker than a bootstrapped start-up as its more of on the job training there. Both on the other hand their own pros and cons though.
Learning from cross industry management teams
The investors in your business might also bring in cross industry or domain expertise which is otherwise difficult to find in your industry. For instance, number of technology start-ups have exploded in recent decade. I will again argue with the marketing ecosystem as given in the example above that over 7000+ solutions that too in marketing alone can make communications crazy. Google is going to benefit from this the most as everyone will fight for SEO, client dominance, barriers of entry for others etc. A technology start-up will learn (probably and I am assuming here) or have more resources or literature available on failures or success reasons than any other industry today.
Less Marketing dollars
Being on top of the mind is in demand these days. A bootstrapped business will mostly have less marketing dollars as compared to a well funded one. While there are ways to overcome that through effective SEO, PR and so on. A well funded start-up has the advantage of dollars and can easily be promoted across marketing channels at a faster rate than a bootstrapped one.