The vast majority of internet businesses, nearly 99.9%, will never seek investment from venture capitalists or equity sharing. In fact, because of the low startup cost of internet businesses as compared to their brick and mortar counterparts, internet marketing is the most fertile ground for bootstrapping a business. Bootstrapping, or paying for a business startup through one’s own personal funds, is a common way to start a small business while retaining 100% of the equity. While you may face some tough times, and life might be a little less comfortable while you get your business on its feet, bootstrapping a successful business leaves the most room for future success.
Potential Downsides of Bootstrapping
I strongly believe that bootstrapping an internet business is the way to go for a first time business owner, but there are a few limitations that you must keep in mind.
Bootstrapping limits your operating capital to the amount of money that you personally have on hand (and are willing to invest in your business) so you may not have the necessary operating capital to pay expenses on long-term or large-scale jobs. For example, you might have to turn down a huge SEO contract because you don’t have the money to pay for the necessary assets and labor in advance. Larger businesses, and businesses with investment capital, would be able to take the large contract in expectation of future revenues because they have flexibility in their cash flow projections.
If you have a truly unique idea, and I mean TRULY unique, bootstrapping might hamper your growth enough that a competitor with more resources will be able to take over your niche while you are still growing. This is rare though, and usually it is better to produce a product (any product) rather than spending time protecting your intellectual property.
Bootstrapping greatly increases your exposure to risk. If you bootstrap a business, and the business fails, you will lose money. Risk is a fact of life for businesspeople though, and don’t think that you will avoid personal risk by seeking investment instead. You would be hard pressed to find a venture capitalist that is willing to risk money in a business if you haven’t already gone all out with your personal investing in your own idea.
No-Nonsense Bootstrapping Guide
Before you start bootstrapping your business, you need to take a hard look at your personal finances. What is the absolute bare minimum that you are willing to live on? Have you eliminated all of your extra expenses from your budget? For the next year or so, your business will be your life, and it will demand all the resources at your disposal.
Next you need to find a mentor. Don’t look for someone who will be a perpetual “yes” man, you want someone who will make you face the hard decisions. Mentors need to be tough, and they need to understand that you will be so consumed with your business that you might not know when it is time to pull the plug.
Raise money. Instead of asking for investors, you need to find ways to squeeze startup capital out of your own life. When I started my first business, I sold my house and moved into a cheap motel room for two months until my business started to generate revenue. You might have other assets to sell, or you might even consider withdrawing from your savings accounts.
Reinvest every dime into to the business. Get it into your head now – you will NOT pay yourself for at least the first year of your business. As a small internet startup, your #1 priority is company-level growth. There will be plenty of time for personal reward when you make it big.