What is the right way to fund your new start-up? Should you bootstrap or chase some outside funding? Outside funding might be tempting, but it might not be the right way to go.
DEFINITION of ‘Bootstrap’
A situation in which an entrepreneur starts a company with little capital. An individual is said to be boot strapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.
One of the questions that plague first time (or any time) entrepreneurs is whether they should leave their job to pursue their side project full time.
The almost immediate realisation is that you need money to survive and if you leave your job you won’t have any money coming in.
The next logic leap is to either raise funding for your idea or use your savings to build your own business.
This is a difficult problem to solve and one that has no clear-cut answer. I hate to say it, but it all comes down to context.
Quit and bootstrap
It’s great to be passionate and enthusiastic, but it’s never a good idea to make an irrational life-changing decision on a whim.
Quitting your job because you think you’ve discovered the next big thing is a dangerous move and generally ends badly.
Most of the time you can self-fund the first version of your product or idea for very little money. This means you can stay at your job and work in the evenings/weekends while building up some capital. So that’s where I’d start.
Don’t go big and start off with all the bells and whistles. You should aim for a minimum viable product (MVP). That means, build the minimum viable product you can build and take to market. The one that will help you prove that there’s something bigger at play.
This part is fairly easy to self-fund if you are patient and really plan your moves carefully and budget well.
You definitely do not need to raise millions of rands to prove if there’s a business in your idea or if your business is worth growing. Small amounts of your own money can do this and go a long way.
What you do with your money
The most difficult thing about bootstrapping your business (the common term for self-funding) is being dedicated enough to actually use your own money.
You really have to believe that your idea is incredible to spend your own, hard-earned money on a crazy idea. But if you do, you’ll learn some key lessons about your product or idea that you can use when you either have more sales, save more money or raise funding.
A lot of people like the idea of building a business and escaping their boring corporate job. The truth is much more difficult than that, though. If you really want to build a business without raising funding you have to portion out your salary and dedicate some of it to your new idea.
That means you have to eat out a little less, go to the movies a little less and probably not buy those new sneakers you were eyeing. Bootstrapping a business takes dedication and time, as well as your savings.
However, if you really can make it work then you’ll own 100% of your brilliant new business. The upside of self-funding is full ownership, and that’s not to be scoffed at.
Funding first
This model of building a business is almost entirely gone. There are very few investors who are willing to fund an idea without a proof of concept. So in truth, you have to bootstrap to a point and then start thinking about raising funding from investors.
If you really do want to try and find funding before you build anything, the best thing you can do is network first. Investors don’t invest in businesses blindly.
They invest in entrepreneurs who have a proven track record, or who have been referred to them by other investors or entrepreneurs that they trust. So build up your network and start embedding yourself in the community.
Sales is funding
The funding vs bootstrapping debate has many heated points of view, but one route that is often overlooked when it comes to funding is selling. Once you’ve built a product (and sometimes even before) your immediate next step should be to go out and make sales.
The more you sell, the more money you make, and the more money you make, the less dependant you are on funding.
