I had a great conversation with someone who’s looking to bootstrap up a new business, step by step, starting just with minor help from a few friends.  The rest will come from each sale funding a slightly larger investment in building the business.

This kind of creativity is so much more important in an environment where business loans are extremely hard to qualify for.  But bootstrapping has other advantages too:

  • You retain control of the business decisions.
  • If the business doesn’t work out, you don’t also lose all your assets.  It doesn’t have to wreck your life.
  • You’re constantly testing the viability of the business:  It’s harder to fool yourself into thinking that a failing venture is actually OK.
Of course, the downside is that you can’t grow as quickly.  Here’s some reasons why it might be better to go for some external funding:
  • You won’t survive unless you can enter the market quickly with a certain amount of critical mass.
  • You have a proven business model.
  • You have an experienced team who can become effective quickly.
Realize, of course, that it’s pretty easy to fool yourself on these points.  I’ve seen quite a few cases where entrepreneurs think that the market is moving faster than it really is, but also overestimate their ability to vault their company to leadership with just a big injection of cash.  So it’s vital to get the assessment of an objective third party.
This is important not only for pure startups, but when you’re looking to a significant expansion of your existing business.  Many try to fund incremental growth through debt or exchanging money for loss of some control.
I have to say that I’m not a big fan of doing that, because I’ve seen the difficulties that will arise later on.
So if you can bootstrap your growth out of your existing business, that’s preferable.  You’ll keep control, you’ll test the viability of the expansion as you go along, and if things don’t work out, you won’t have to wreck your life to backpedal.
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