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10 Benefits of Bootstrapping Your Startup
Business Basics

10 Benefits of Bootstrapping Your Startup

17 min read

Andrew Gazdecki is the CEO of MicroAcquire, former CEO of Bizness Apps & Altcoin, and Inc.’s 30 Under 30 in 2017. He has been featured in NYT, Forbes, WSJ, Inc.com, and Entrepreneur Magazine, as well as prominent industry blogs such as Mashable, TechCrunch and VentureBeat.

An investment offer can seem like a dream come true. One, it validates your hard work. Two, it means someone believes in your startup’s potential. And three, you can finally hire that expensive engineer or C-suite executive. But investment isn’t always the best decision for you or your startup. Are you ready to trade equity and control for cash, for example?

Bootstrapping, building a startup without investment, might sound harder—and I’d be lying if I said it wasn’t—but the benefits are huge. Not only do you retain full control and ownership, but you learn how to adapt to challenges, like budgeting and managing finances, and solve problems without throwing money at them. I’d go so far as to say that bootstrapping makes you a better founder—more resilient and agile. 

Once your startup scales, investors will press you to take their money. You might have had a few banging on your door already. But if this is your first business or your first two to three years of operation, I recommend turning them down. Why? You’re probably not ready for it. Bootstrap, earn your battle scars, and then you’ll know how to make the most of your investment. 

Below is a list of bootstrapping benefits versus raising equity capital. You can, of course, raise money through debt such as a bank loan or revenue-based financing. Debt investors may be less imposing since they expect repayment only (plus interest) rather than a 10x’d valuation. But consider the impact of debt on your business as it can be expensive.

1. Freedom

Once you accept investment, you’re obligated to the investor. They don’t give you money and then walk away leaving you to spend as you please. They expect a return. They might also expect a say in how you run your business, what strategic decisions you make, who you hire, and what products you launch. In other words, they’ve bought a seat at your decision table.

Bootstrap, however, and you never take direction from anyone but your customers. You control the money your business has. You can set budgeting goals and build strategies without a board or investor breathing down your neck. Okay, you might want mentorship at this stage of your career, but you can find that in the entrepreneurial community (they’re a helpful bunch) without giving up equity or control of your business.

2. Ownership

As the value of your startup increases, the value of your shares increases, which could return a life-changing amount of money for you and your teams when you exit. But if you issue new shares to investors in return for cash, your (and other shareholders’) equity percentage falls, and you walk away with less after acquisition despite having toiled for years to exit.  

When you bootstrap, you and your teams retain 100 percent ownership. Equity is motivational. Bootstrap and you not only keep more in the pot for the people who’re building your startup, but you also accelerate their productivity and boost morale. You could then find your valuation in a much healthier state than had you accepted investment and dilution for a quick win.

3. Time

Investors aren’t renowned for their patience. When you’ve invested a million or so dollars into a business, you want it to grow, amass huge profits, and get acquired as quickly as possible. Don’t be surprised if an investor expects you to prove your worth by a strict deadline and imposes targets or conditions on future funding, which could force your hand.

Bootstrap, however, and your time is your own. Gone are the crazy growth targets, and instead, you choose the rhythm, cadence, and pace at which you chase your goals. Time is a privilege, allowing you to build better products, provide better service, and instill a better company culture in your teams that rejects burnout in favor of a work-life balance. 

4. Agility

Startups resilient to change usually achieve the most success. That ability to pivot and adapt to changing market conditions is how a startup survives: Who’s to say your initial business model is best? What happens if you spot a market opportunity elsewhere? Or, you might simply dislike the scope of work and want to focus your time on where you have the most impact or most fun. 

An investor, however, takes a calculated risk on your startup and will resist changes that invalidate that calculation. You might convince them of the move eventually, but can you afford to waste time waiting for their permission? Time is money, as they say, and as a bootstrapped business, you can react to market conditions free of investor concerns.

5. Love

What do you love most about being an entrepreneur? Building cool products? Delighting customers? Leading teams? While investment won’t necessarily stop you from doing these things, you might find managing investors and their money more time-consuming than you realize. And what happens when funding dries up? You might have to raise more. 

Once caught in that fundraising loop, you spend more time pleasing investors than operating your business. But if you bootstrap, you do what you love from morning until night without answering to anyone but yourself and your customers. You might not love every aspect of entrepreneurship, but you can choose where to spend your time and hire others for the rest.

6. Focus

I always say customers are your most sustainable source of funding. Delight them and they’ll return to you time and again, refer their friends, and spread knowledge of your brand. Without the cushion of investor dollars, you survive only if you make customers happy. It’s a simple mandate that creates intense focus and consolidates and contextualizes your goals.

Bootstrapping is a continuous reminder of your purpose: the why of your startup. Investment might feel like validation but it only validates your potential, not your impact, and if you’re unsure how to spend the money, it’ll only distract you. Customers are the only litmus test you need. The better you serve them, the bigger and more profitable you’ll be.

7. Efficiency

Accepting investment too early can lead to some unwise decisions. Rather than learning the signs for when your company is overspending and knowing how to cut back, you may simply throw money at the problem.

Growth plateaued? Increase the marketing budget. Customers unhappy? Hire more support staff. Product full of bugs? Build a new one. Rather than address the causes, you fix the symptoms because spending money is the easy way out. 

But investment doesn’t last forever. If you only treat the effects, the problems will recur, and you’ll then have to spend more to solve them—just like a dog chasing its tail. When you bootstrap, however, you must question every expense and think your way out of problems, which leads to a tight, agile, and efficient business.

8. Innovation

Investors expect you to spend their money. If you bank it for a year or more, you’ll raise as many questions as if you’d burned through it in six months. Without a plan for investor cash, you might be tempted to spend for the sake of it, overengineering solutions, hiring unnecessary staff, or pimping out your office to impress clients—bad habits that dull your edge. 

Bootstrapping forces you to think critically rather than rack up expenses. You want to prepare a beautiful three-course meal for customers, not an all-you-can-eat buffet at Taco Bell, and bootstrapping helps cultivate that entrepreneurial mindset that results in better products and services. Investor funding, on the other hand, without a clear purpose, can lead to bloat.

9. People

Isn’t it amazing to work with people who’re more like friends than colleagues? Makes your day brighter. As a bootstrapped founder, you get to work with people you like. You choose whom to hire and which customers to serve. Accepting investment means accepting investors, who could be individuals or a board, and over whom you might have very little influence.  

Always vet investors to ensure you’ll get on well together and be mindful of funding blinding you to the warning signs of a toxic relationship. Investors can be polite until you fail to hit targets—then they might be on your case every day. You can’t fire them and most likely need to stay in their good books for the sake of your reputation. Bootstrap, and these problems disappear.

10. Exits

Choosing when to sell your startup is deeply personal. It relies on so many things: the maturity of your career, your physical and mental wellbeing, post-acquisition plans, and more. As a bootstrapped founder, you exit when you’re ready: when the money and timing align to create the best possible conditions for success in whatever you choose to do next. 

When you accept investment, however, the exit point might not be your decision alone. You might need sign-off from the board. Investors might push you to exit early or demand that you stay on longer than you want to. This is a lot of pressure that could later become misery. To avoid having others dictate such life-changing decisions, stick to bootstrapping instead. 

I don’t want to give the impression that raising money is bad. Far from it. Instead, I want you to understand the repercussions of accepting investment too early. If you know what to do with the money, it aligns with your goals, and you’re happy with the terms, investment could help you build a bigger business, better products, and deliver a superior service to your customers.

Couple investment with Divvy’s spend management platform to help you track, budget, and manage expenses all in one place, and you have total control over where investor dollars go—without wasting hours on fiddly expense reports. It might mean the difference between money well-spent and money, well, spent.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

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