To Raise Money or Use Your Own Money
Aspiring entrepreneurs watch shows on TV like Shark Tank and start believing that the only way to launch or grow a business is with venture capital. In reality, there are several ways to establish and fund your business without a reliance on outside investment. Although it can be more challenging to create an exceptional business without relying on investors, there are several benefits of bootstrapping your company and investing the profits for further growth. Let’s discuss how you can do just that, without a reliance on venture capital money.
The How and Why of Business Bootstrapping
As an aspiring entrepreneur, you have likely heard of bootstrapping. This is the process of creating a self-sustaining business without financing from outside investors. Some of the world’s most successful companies such as Nike, Hewlett-Packard, and Dell all started with less than $10,000 of startup capital. Surprisingly, starting a company does not require a large amount of money. You can bootstrap funds to create your business by:
- Using personal savings or income from your full-time job, part-time job, or side hustle.
- Leveraging credit cards or other forms of consumer debt.
- Asking family members or close friends for personal loans.
- Creating sweat equity by doing whatever you must to create seed capital.
The Benefits of Bootstrapping Your Finances
But what exactly are the benefits of bootstrapping instead of relying on venture capital or angel investors? There are several reasons why bootstrapping makes more sense in both the short and long-terms.
First, according to several academic studies, anywhere from one-fifth to two-fifths of company founders who rely on investors are replaced in their own businesses after receiving initial funding. Although you might have the vision, by giving up ownership your investors might decide that you are not the right person to lead your own company.
Second, the founders that do stick around until an IPO after receiving venture capital funding often only maintain 10% of the equity in their companies. That is a lot of decision-making power and income that you are giving up to other people.
Finally, founder-led companies often better understand how to manage their cash. This is something you learn with a focus on making and managing money rather than raising capital from other investors. By learning to make profits and reinvest into the growth of your company, you will know what it takes to scale your business at a reasonable and consistent rate.
The Process of Reinvesting Your Profits for Business Expansion
So, you have decided to bootstrap your business and you are making profits from your products or services. Next, you should know how self-reliance on growing and reinvesting your profits can help your company grow. You can do this in several ways, including:
- Investing in your own knowledge using online or offline courses and books.
- Improving your business infrastructure and equipment so that you can produce more efficiently or offer more services.
- Marketing your products and services both online and offline.
- Hiring and training employees.
In Conclusion, You Do Not Need Venture Capital to Start or Grow Your Business
There is a misconception that founding and growing a business means finding venture capitalists to fund your goals. Yet, some of the world’s most successful companies have relied on business bootstrapping and profit reinvestment to grow. If you are an aspiring entrepreneur or you are looking to grow your existing company, consider whether you can achieve your goals without outside investment. Not only will you retain more control of your company, but you will also be heavily rewarded for your determination in terms of both business profitability and with the skills you learn from business bootstrapping.