4 Fundamental Reasons Why Startups Should Consider Bootstrapping

The Indian startup ecosystem is one of the biggest in the world with VCs pumping in over $9 Bn in 1005+ startups in 2015. This number has reached $2.1 Bn in the first half of 2016, but of late, investors have been treading ahead more cautiously and are being very choosy about the startups they decide to invest in.

In the current scenario, many of the top startups have been struggling to raise the next round of funding. Even leading etailers like Flipkart and Zomato have been devalued, thus putting investors on the back foot. Many startups have even shut in the face of funding drying up.

On the other hand, taking the changing current scenario in their stride, many startups are turning to bootstrapping to keep going. However, it may be a difficult road to tread for a business, since it means cutting down on a lot of expenses and going the ‘no-frills’ way. You have to grow your business organically, which may take longer. There is a considerable risk as well as you take a huge financial risk and may lose out on getting a ‘comfortable’ salary in the initial launch period of your startup.

You are also likely to take longer to launch in bigger markets and may need to rely on word of mouth instead of backing on big media campaigns or VC’s to make your brand bigger.

But then, bootstrapping also comes with its share of pros, which far outweigh the cons if the idea and its execution are good. That includes entrepreneurs getting to keep their share of the business instead of having to hand over a large chunk to VC’s and investors.

Here are some key advantages of bootstrapping:

Freedom To Do Your Own Thing

 Bootstrapping your startup helps you focus on your vision and create a product that you believe in. If you go for funding, it is possible that the vision and goals of the investors, VCs, accelerators, angel investors, etc. may differ, thus diluting your vision in the process.

By funding your startup, you remain answerable only to yourself, which gives you the freedom to follow your own path and vision. You don’t have to be answerable for each step you take to external investors. It is possible that at times VCs may not understand your thought process, thus preventing you from taking bigger risks with their money.

Sometimes, VCs and investors may even push their own vision and way of doing things on to startups they are backing. By bootstrapping, you remain free from outside influences and remain hyper-focused on what you want to do. This can help you build a strong independent brand.

You also get the freedom to innovate. And as they say, “Necessity is the mother of all invention”. You will be more driven to innovate as well as try new things to see how your business can work even better.

More Creative Control

 When you bootstrap you get complete creative control over your startup. You can understand how your business works from the ground up, and learn from your decisions, whether successful or not.

You Feel More Responsible

When your own money is on the line, you will be even more motivated to work harder. When you own 100% of a business and are responsible for the well-being of your company as well as your employees, you will be more obsessed to make it a success.

It will teach you to do more for less, thereby driving better efficiency at every level, which automatically gives you better chances to succeed. With more and more startups adopting a frugal approach, given a scarcity of funding, bootstrapped startups will not find it too difficult to cope since frugality automatically gets built into their DNA over a period of time.

Potential To Reap Greater Returns When Scaling Up

 Bootstrapped companies can consider going for external funding once they have a strong business model that has been validated in the market. When you decide to do so, remember, investors too look at bootstrapped startups with greater respect, since there’s a lot the founder put at stake to build it from scratch.

Also, since the foundation of the business is likely to be much stronger (in terms of a well thought of product, more stringent processes etc., given the founder’s personal resources are at stake), you have better chances of negotiating the deal on your terms rather than letting the investors dictate their terms.

Conclusion

Bootstrapping certainly is not for the faint-hearted. But if you have a disruptive product or idea and are confident about executing it well, you will automatically have a strong belief in the idea and will not hesitate to back it with your money.

Bootstrapped companies, in fact, stand a better chance to be successful, as these startups have no choice but to make the most of the scarce resources available right from Day 1. It ensures that you focus on the aspects that will drive a business to become profitable in the least possible amount of time in order to keep the ball rolling.

On the other hand, funded startups can easily get distracted with all the money that they have and may end up spending on ‘frills’ that are not necessarily doing anything to boost your top-line or your bottom-line.

So, don’t be afraid to bootstrap. Remember, some of the most renowned companies like Facebook Inc., Dell computers, and Microsoft Corp. started as bootstrapped businesses!

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.