Bootstrapping: A Third Way to Building a Successful Company from Scratch
Bootstrapping is building a company from scratch with no external investment or support. Instead, these companies rely on the paid customers to fund and grow their business.
Bootstrapping founders usually start with their own savings and mostly rely on self-financing, hard work and luck to succeed. The predominant strategy bootstrapped companies take is quickly reaching a stage where sales revenue could fund the business. Bootstrapping is fundamentally different from venture-backed companies and small scale freelancing.
According to Marketing Guru Seth Godin, bootstrapping is “a third way to be independent. Not the daily struggle of the gig-seeking freelancer, nor the high-stakes VC world of the big-time entrepreneur. Instead, the bootstrapper finds freedom early and often, by building an enterprise that customers want so much that they become the source of funding. Bootstrapping is freedom via service. Finding ways to connect and lead and serve customers so well that they can’t imagine doing it without you.”
While equity financing remains a hot topic in media and startup circles across the world, almost 80% of all companies don’t raise any external investment and are funded by founders and paid customers. In fact, a growing number of founders are now showing interest in bootstrapping and building their business with the support from paying customers instead of giving up control of their companies for external funding.
There are certain benefits and limitations of each type of business. There are some inherent advantages that bootstrappers enjoy such as control, freedom and positive pressure for building a product that customers want as quickly as possible. Similarly, there are some inherent disadvantages to bootstrapping such as the increased risk for founders, resource constraints, and inability to fight-out with the competition.
Externally funded companies enjoy certain benefits such as easier access to resources, distributed risk, and the ability to freely invest in growth.
Similarly, when you raise external investment your control shrinks and with money comes the temptation to waste and spend money in areas where you should not.
In many instances, raising external invest comes with extra pressure for growing at any cost, which makes continuously raising more capital a necessary condition for the survival of a business.
At the same time, raising money is a time-consuming endeavor. Many founders told us that it takes a minimum of six months of work to close a deal and it is a full-time effort.
A lot of what type of financing mechanism you should choose for your business depends on the type of business and your personal preference. However, there are certain advantages bootstrapped companies enjoy that diminishes when you become a venture-backed company.
In the context of Bangladesh, bootstrapping remains a far superior choice than going for a venture-backed option. Again, there are businesses that require large scale upfront investment, those are not the business that we are talking about here. Similarly, whether you want to build a bootstrapped company or not is largely a personal choice.
Here are some reasons you should consider bootstrapping as a viable option for building a sustainable business.
- Control and freedom – bootstrappers are owners and control 100% of their business. It allows a certain level of freedom and control.
- Paid for by customers – bootstrappers have to acquire paying customers from day one.
- Building a real business – as a bootstrapped founder you will be spending all your time in building a great product and a great business instead of spending time after investors.
- Live with an urgency – bootstrapping means you have little room for wasting time and money. You have to earn money as quickly as possible and often when you try hard, things turn out to be okay.
- Raising money is hard – Moreover, raising money is not easy anywhere in the world. Some 2% of all companies that try to raise investment eventually go on to raise VC investment in the US. In Bangladesh, it is few and far between. The number of deal flow remains slim in Dhaka. A mature VC ecosystem is not there as yet. While the scenario has improved a lot in the past few years, you will need to invest a lot of time and energy to raise investment.
Examples of bootstrapping success in Bangladesh
There are a lot of bootstrapping success stories in Bangladesh. Startups are always risky endeavors and a majority of startups die prematurely. People who come out winner often stay in the game longer, hustle and try to be lucky through hard work and effort.
Bdjobs.com: You can read more about Bdjobs here.
OnnoRokom Group: You can read about the journey of OnnoRokom Group here.
Zanala Bangladesh: You can read the journey of Zanala Bangladesh here.
MACOMM: You can read the story of MACOMM here.
FieldBuzz: You can read the full FieldBuzz story here.
Nascenia: You can read Nascenia story here.
Analyzen: You can read Analyzen story here.
Dhaka Distributions: You can read Dhaka Distributions story here.
WebAble: You can read WebAble story here.
Ruhul Kader is a technology business and technology policy analyst based in Dhaka, Bangladesh. He is also the co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at [email protected]