BOOTSTRAPPING: The art of building a business without external funding

By Diana Franco Fernández, Junior Consultant of Innovation and Business Development, and Daniela Franco Ríos, Junior Consultant of Innovation and Marketing.

Bootstrapping started in the Anglo-Saxon world and today is a global trend. What is it about? Simple: creating a business by making the most of the resources you already have at your disposal. Some of these limited resources may be your savings as an entrepreneur, a workspace that suits the job, technology, and your own staff, among others; in other words, Bootstrapping focuses on creating, growing, and maintaining a company.

Source: PRNewswire, Oct. 8, 2020.

Benefits of Bootstrapping: Why Should You Consider It?

Own creation

Challenges of Bootstrapping: What You Need to Know

The financial responsibility, potential risks, and economic downturns fall on you as you don't share the burden with external parties.
Time can become a challenge since, without external funding, you'll have to do more with less, which could lead to overexertion. It's crucial to manage your time well to avoid burnout.
Limited resources can frustrate entrepreneurs, as they face restrictions in growth, missing positive opportunities due to lack of resources or simply having to wait to generate more income and invest in new opportunities.

How to Optimize Your Limited Resources: Bootstrapping Strategies

For Bootstrapping to work in your business, it's important to master a few key aspects. Here are some practical tips that will help you optimize and use limited resources efficiently.

Prioritization of Critical Resources. Focus your energy and resources on activities and expenses that are essential for the success of your business. Identify the most important areas and direct your efforts toward them.
Low-Cost Alternatives. Take advantage of accessible tools and services, such as affordable software or coworking spaces, that can boost your company's growth without significantly increasing costs.
Inventory Optimization. Assess and distinguish between productive and non-productive inventory. Reduce costs by minimizing inventory that does not directly contribute to the success of the business.
Negotiation of Competitive Prices. Develop negotiation skills to secure prices that align with your company's goals, whether with suppliers, collaborators, or business partners.
Strategic Task Delegation. Identify tasks that do not require your direct attention and delegate these responsibilities to others, allowing you to save valuable time and resources.
Market Adaptability. Stay flexible and willing to adjust your strategy when necessary. The ability to adapt to changes in the market is vital for long-term success.
Measurement of Operational Efficiency. Implement key performance indicators (KPIs) to assess your company's performance and ensure you are achieving your goals efficiently.
Fostering an Innovative Business Culture. Develop an organizational culture that values creativity and problem-solving, making the most of available resources and promoting continuous innovation.

Additionally, there are techniques that facilitate the execution of Bootstrapping, such as those focused on the intelligent reinvestment of profits and knowing which areas to apply them to:

Growth: Reinvest a portion of the profits into the development of new products or services; expanding staff, marketing, geographic reach, and the business in general, without exceeding resources.
Savings: Create a reserve fund from profits for future opportunities or potential unforeseen events.
Low-Cost Marketing: Invest in promoting the business to reach potential customers.
Creative Financing: Identify latent factors that generate income in order to achieve proper financing without exceeding costs.

Sustainable Growth: Scaling Your Business with Bootstrapping

To grow and scale without external funding, it's vital to create sustainable strategies. Evaluate expansion opportunities and ensure that your business can scale using only the resources you already have.

Regarding the evaluation of expansion opportunities, it is essential to assess those opportunities that are valuable for enriching the business. For this, you need to review key aspects:

Market Analysis: Primarily, identify your competition, understand their strengths and weaknesses, investigate market trends to take advantage of them and drive growth, and also identify locations where the service or product can generate good profits.
Resource Evaluation: For the expansion of the company, you should verify financial and human resources and investigate if the infrastructure is ideal for growth.
Risks and Rewards: Identify potential risks and evaluate the potential return on investment throughout the growth process.

In relation to the scalability of the business with your own resources, knowing the growth opportunities makes it more feasible to assess scalability. In other words, if your business is capable of increasing production without affecting the rise in costs, you should analyze certain elements such as:

Identify Challenges: Determine which processes are currently being carried out that hinder the business's growth.
Automation: Identify which processes can be automated to improve efficiency and reduce costs.
Delegation: Identify which tasks can be entrusted to others to free up more time and resources.
Scalable Systems and Processes: Create or implement new systems based on adaptability to growth.
Continuous Improvement: Establish a business culture focused on innovation.

Success and Failure Cases: Lessons from Companies That Used Bootstrapping

Now we will analyze real company cases that have successfully incorporated Bootstrapping and others that ended in failure.

Table of statistics of successes and failures

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The Star Case

Apple Inc. is one of the most successful and globally recognized cases of Bootstrapping, managing to create a business empire without relying on external capital, growing simply with creativity, ingenuity, efficiency, and the ability to reinvest profits.

In 1976, Steve Jobs, Steve Wozniak, and Ronald Wayne founded the company, starting in Jobs' garage, selling many of their belongings to self-finance and build the first prototypes of the Apple I. They proceeded to sell hand-built computers to local retailers, with their first success being the sale of 50 units to the Byte Shop retailer, which became a crucial decision for their revenue. The profits from this were reinvested into the development of the first personal computers, the Apple II. The company continued to scale globally, becoming a phenomenon.

Apple is proof that Bootstrapping works. With their own resources and plenty of ingenuity, they managed to grow and scale without seeking external funding, becoming one of the most valuable companies in the world.

Success Stories: Companies That Thrived with Bootstrapping

Mailchimp: Founded by Ben Chestnut and Dan Kurzius in 2001, starting as a small project, it became the largest email marketing platform through Bootstrapping strategies and maintaining organic growth. It expanded through its excellent work, word-of-mouth, and customer retention, without relying on external funding. They focused on financial sustainability and grew from their own profits, selling the company in 2021 for $12 billion to Intuit.
GitHub: Founded by Tom Preston-Werner, Chris Wanstrath, PJ Hyett, and Scott Chacon in 2008, GitHub is a company specializing in software development, starting with self-financing, charging corporate clients for their project management tool while offering a free version for individual users. In 2018, Microsoft acquired GitHub for $7.5 billion.
Spanx: Currently one of the largest companies in the underwear industry, Spanx was created by Sara Blakely in 2000 with her personal savings of $5,000, retaining full control of the company. She focused on prioritizing the product vision, marketing, and innovation, eventually becoming a global phenomenon.

Lessons from Failure: When Bootstrapping Was Not Enough

Pets.com: It was an online retail company that offered pet products and accessories, founded in 1998 with self-financing. It raised up to $82.5 million in its IPO (initial public offering) in February 2000. However, it shut down just nine months later due to a weak business model, lack of focus on profitability, and a premature market.
Webvan: Founded in 1996, Webvan was an online grocery delivery service that reached $800 million in its best years. However, it scaled too quickly without a clear profitability strategy, investing $1.2 billion in infrastructure, expanding to multiple markets without ensuring a solid presence. It went bankrupt in 2001 and was later relaunched by Amazon.com in 2009.
Beepi: Beepi was a startup that sold used cars online, connecting users with sellers and saving time in the buying or selling process. At its peak, the company was valued at $560 million. However, its inability to maintain a profitable business model and lack of innovation led to its failure. The company failed to manage its operational expenses, running out of resources and declaring bankruptcy in 2016, selling off parts of the company to settle debts.

As an entrepreneur, it is crucial to understand the impact and opportunities that Bootstrapping offers. Success stories like Apple Inc., Mailchimp, GitHub, and Spanx demonstrate that it is possible to build business empires with creativity, ingenuity, and profit reinvestment without relying on external capital.

In the following graph, you can clearly see that the success stories in Bootstrapping significantly outweigh the failures, offering a powerful motivation to pursue this path.

Own creation

However, it is equally important to learn from failures, such as those of Pets.com, Webvan, and Beepi. These cases highlight the need for a strong strategy and careful management to avoid costly mistakes. Ultimately, the path of Bootstrapping can be challenging, but with the right approach, you can turn your ideas into a resounding success.

Practical Guide: Create a Bootstrapping Plan for Your Business

From this final exercise, you will be able to create a basic and adaptable 7-step plan for the type of business you want to start without relying on external capital.

Define the product or service: From the very beginning, it is crucial to research the market you want to enter. For this, you need to define, what you will offer? and what problem it solves? Also, validate how viable it would be, meaning conducting a market study. Briefly describe your product or service, determine the target market, and identify the specific problem it addresses.
Identify the initial resources: Create a list identifying what resources you need to start your business. First, think about the tools that will be useful to you (technology, human resources, materials, finances, etc.), and then ask yourself, what are the minimum resources required to begin?
Set an Initial Budget: Create a realistic budget by always considering how much money you can invest yourself to get started? Remember that it should only include savings, accessible resources, or other types of income you can reinvest into your business. Do not include loans or investors as external financing.
Generate income as soon as possible: Develop strategies to sell your product or service immediately. Ask yourself, how can you start generating income quickly using the resources you have? Create pre-sale strategies and a minimum viable version of your business.
Reduce costs to a minimum: Now, make another list, but this time with potential costs you can reduce. Research what free tools you can use, such as software, create your own digital marketing on social media, and leverage word-of-mouth or work from home. Investigate, what expenses you can reduce or avoid entirely at this initial stage?
Reinvest profits: Develop a plan for your first profits to reinvest them into areas of your business that need them most, such as acquiring more inventory or improving the product. Remember, how do you plan to reinvest those first profits to continue growing with self-financing?
Scale gradually: As your business grows proportionally, expand it without spending more than what you generate, ensuring that profits allow for it. For this, what strategies can you implement to achieve growth and scalability in a sustainable manner?

Bootstrapping involves achieving great results with limited resources, and the case of Flotu is a clear example of this. This project has shown that, even without large external investments, it is possible to build and scale a digital business by applying smart and focused strategies. Some lessons we can learn from their experience are:

Optimization in times of limited resources: Flotu has focused on prioritizing high-impact actions, such as SEO optimization and generating quality content, allowing its online presence to grow organically without relying on large budgets.
Focus on continuous improvement: The dedication to perfecting both technical aspects and user experience has been crucial for competing in a saturated market. Every adjustment and improvement translates into greater visibility and, therefore, more growth opportunities.
Resilience and adaptability: In the world of bootstrapping, the ability to quickly adapt to challenges is essential. Flotu has been able to adjust its strategy based on the results obtained and market trends, demonstrating that flexibility is key to success without large investments.

These points make Flotu an inspiring reference for any entrepreneur looking to launch and grow a business using only available resources. If you're looking to learn how to drive your project organically, the story of Flotu is undoubtedly a source of inspiration and a practical example of bootstrapping in action.

Es Tu Momento: Pon en Marcha tu Negocio con Bootstrapping

It’s your moment! Strategically design the launch and growth of your business using Bootstrapping. Reflect on how you can efficiently use your resources to achieve your goals without relying on external financing.

Define your product or service: ____________________
Initial resources needed: __________________________
Available initial budget: ___________________________
Plan to generate income quickly: ___________________
Actions to reduce costs: __________________________
Strategies to reinvest profits: ______________________
Gradual scaling plan: ______________________________

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(Clutch, 2020)Clutch. (2020, octubre 8). 22% of founders rely on friends and family for capital when starting a business, New data from Clutch finds. PR Newswire. https://www.prnewswire.com/news-releases/22-of-founders-rely-on-friends-and-family-for-capital-when-starting-a-business-new-data-from-clutch-finds-301148481.html