Bootstrapping Demystified

By Chirag Mehta, Mentor at Espark-Viridian

In this time and age where the startup ecosystem is awash with venture capital, bootstrapping comes across as old-fashioned, unnecessary and perhaps the difficult option. So much so that a whole generation of entrepreneurs are confusing entrepreneurship with fundraising. Many entrepreneurs I’ve met feel that the ultimate validation of their idea is securing outside capital. However, they spend way too much time thinking about the funding rather than focusing on the primary goal –  which has to be building and growing a business. And at this point let me add one more point – since time immemorial the ultimate objective of business has been to generate profit, sooner than later!

Also a big disclaimer at the onset, I have nothing against fundraising, in fact, we support companies in fundraising. However, this blog is intended to share a contrarian view of life for those who want to grow organically without external capital. Please remember for every Flipkart we have a Zoho, so keep the faith!

Let me share with you some of the benefits of bootstrapping and then toward the later part of the blog lets touch upon some simple hacks to judge if bootstrapping is the right way to go for your business.

  1. Bootstrapped ventures typically exhibit some core survival values that are fairly nontypical in well-funded startups. Please note this is more of an observation than a rule.
  2. Capital Efficient: Bootstrapping helps foster a culture of self-sufficiency that’s very important in small businesses, where cash can be tight and owners’ responsibilities swing in the blink of an eye from doing marketing to managing operations or perhaps sorting out the GST muddle. Moreover acting like you are capital constrained is great discipline, and if it comes easy, and you actually are capital constrained, you’ll be forced to build a very sustainable business.
  3. Become a shrewd negotiator: Having a lot of money leads to spending lots of money. Conversely, when cash is short, you’re forced to search for the lowest cost options available on the market – driving a hard bargain from the outset, improving your margin and honing your negotiation skills.
  4. You are forced to learn new skills: Other services that fall outside of your budget (and there will be lots of these) end up being done in-house. If your business is made up of fewer than five employees, as most are, there’s a good chance that you’ll be doing these jobs yourself. And though this could be considered “working hard” not “working smart”, I disagree. I’ve taught myself some invaluable skills – from basic digital marketing to SEO – that I can now use to properly assess the output of agencies we now pay to do these jobs.

However, it is important to note that not all businesses can be bootstrapped. We wouldn’t have had an Ola or a Flipkart without tons of external capital. Essentially there are certain business models that can only be developed with external capital. So, in this case, how does one decide whether one should raise capital or not for their business.

  1. Is your business disrupting an existing business or creating a new segment altogether?
  2. Does it need to capture a large market segment quickly before competition or me-too models emerge?
  3. Bootstrapped businesses tend to exhibit a linear growth. Does your business have the potential to grow in an exponential manner?
  4. Can’t your business access traditional forms of capital like debt? Many a time working capital is funded via equity when traditional banking channels can offer products at a much lower cost of capital.

If the answer to any of these is yes then perhaps bootstrapping is not for your business.

In my experience of running Clip Financial and growing it organically year on year, I have realized that having core domain expertise is very important for one to be able to bootstrap successfully. Else in most cases, the early cheques from investors end up being invested in making mistakes and learning from them.

And though dollops of cash and the growth that it can potentially buy is an extremely tempting proposition, not to forget the fame that comes with being a venture capital funded company, it’s important to remember the golden words:

“Raising isn’t the same as success and not raising isn’t the same as failure“

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