Bootstrapping is a means of financing a startup or small business through highly creative acquisition and use of resources, without raising equity from traditional sources or borrowing money from a bank.
A significant part of starting your commercialisation activities is knowing where to spend your money. Being resource poor at launch does not necessarily have to limit growth of your idea or invention. For most entrepreneurs, this means bootstrapping, as in 'to pull oneself up by one's bootstraps'. You beg, borrow or lease to start the new venture - and this philosophy stays with such businesses for a long time.
Some examples of bootstrapping include:
- running the business from home, instead of leasing office space
- paying employees with company shares in lieu of salary
- obtaining loans from family and friends
- using home equity loans
- leasing equipment or premises rather than buying
- buying on consignment from suppliers
- using government grants to subsidise your early-stage research and prototyping, business planning and marketing efforts.
Bootstrapping is a must for many startups and small businesses. It may be complemented by spending money in the right places and at the right time; the business owner(s)/founder(s) must protect their initial cash resources as much as possible.
From the outset, the choice of who will lead the business and manage the cash and human resources most effectively is critical. Ideally, one of the founders is capable of leading the business as its CEO. It is not unusual to see a change in leadership as a more formal business structure eventuates, and marketing and/or business administration requirements move beyond the capabilities of the founder.