The Most Useful Funding Technique for Funding a Business Startup Is the Oldest: Bootstrapping

by: Geoff Ficke

The Most Useful Funding Technique for Funding a Business Startup Is the Oldest: Bootstrapping

My Consumer Product Development and Marketing Consulting firm is approached almost daily by entrepreneurs seeking to launch a new enterprise. For many of these aspiring business owners their primary concern is the funding requirements they believe will be required to enable execution of a proper launch. Many assume they need to raise funding from angel investors, venture capital or banking sources. Very few will succeed by taking this path.

Capital is extremely selective in placing highly prized investments in untried startup businesses, run by anything less than experienced entrepreneurs. It rarely happens. The expectations of professional investment sources is simply too difficult for most novices to be able to satisfy steep requirements for Return on Investment, Use of Funds, Professional Management Teams or First Mover Advantage.

When we explain to first time seekers of capital the complexities and difficulties that they will face in successfully securing a funding round, we almost always are confronted by resignation. The inevitable query we hear is, “Well, how do you get started”? There are many options but the simplest, and oldest is the concept of “bootstrapping”.

Bootstrapping is simply self-funding. Some of the greatest successes in the history of business were self-funded by Bootstrapping. The most famous is MicroSoft, followed closely by Hewlett Packard. Leslie Wexner launched The Limited in Columbus, OH in the 1960’s by bootstrapping a single dress shop in a strip mall. Estee Lauder created the world’s most successful Cosmetic brand at her kitchen table in the Bronx. King Gillette did much the same in the 1890’s when he launched his eponymous shaving brand. There are hundreds of publicly traded companies around the world that were nurtured to life initially by bootstrapping.

The beauty of not accepting, or seeking an equity investment partner is obvious: There is no partner to share ownership and the necessity to hit performance marks required to obtain funding is eliminated.

True, bootstrapping can hinder the rapidity of growth. But the process of bootstrapping demands discipline and enforces controls on spending that become part of the DNA of the firm as growth occurs. Expenditures are weighed and considered before very dear capital is committed.

The three Magi were bootstrapping incense merchants. Every pioneering farmer or blacksmith was initially a bootstrapping business person. Your insurance agent, realtor, most salesmen, lawyers, shop owners or artisans are bootstrapping for their income. To the extent that capital is required to open a restaurant, coffee shop, day spa, sales agency, franchise a business or set up a landscaping firm the funding required to be able to bootstrap these opportunities comes from friends, family or personal savings.

The Venture Capital community has a well-known phrase to describe the source of seed funding: “Startup monies come from Friends, Family and Fools”. Money flows easily to new, novel business concepts, but only after there is a confirmation of a proof of concept and sales traction is demonstrated.

Bootstrapping is not glamorous. It requires total commitment and focus. Fancy offices, fresh cut flowers in the reception area, expense account lunches and leased luxury automobiles are not line budget expense items for bootstrapping Companies. Credit cards may need to be tapped. Home equity utilized. Aunt Jane approached for a loan. If the entrepreneur is driven, there is nothing that will deny them the opportunity to convert their concept in to a going concern. Bootstrapping is the simplest, oldest, and in most instances, the only strategy available to start a new business.