How bootstrapping can be a blessing in disguise

Bootstrapping is the business philosophy according to which entrepreneurs opt for self-funding the business instead of taking on external investors. While it sounds like a fairly sensible approach, it is one that is becoming increasingly less appealing in today's culture which prizes eye-popping valuation figures and the idea of growth at all costs. The idea that the destiny of all businesses is to follow this trajectory is getting ingrained in the collective consciousness. However, what many don't realize are the compromises involved in this rapid growth mindset, and the benefits that come with funding your business yourself.

Vision

Entrepreneurs often conceive the idea for their business with a broad vision in mind. Beyond the profit factor, pursuing and implementing this vision gives the entrepreneur a sense of fulfillment. However, when getting venture capitalists or private equity partners on board, they realize that capital comes with compromises. It often means that you are forced to dilute your vision for how the organization should grow, and what paths it must take. The founder's control and freedom in decision-making is limited since there are other stakeholders involved. This problem is not exclusive to VC-backed companies; listed companies become accountable to shareholders and as a result, become staid and limited in their ability to experiment.

A founder does not always look at their company as just a money multiplier. They often attach value to their creation beyond monetary and concrete terms - it may be having a positive impact on the planet, creating jobs, or creating good working culture.

Freedom

It is freedom from accountability to investors that has allowed us to pursue some of our key philosophies and put them into action without second thought. For instance, we have always nurtured talent outside of conventional talent pools. Instead of hiring college graduates with fancy certificates as is the norm elsewhere, we train school graduates - often from underprivileged backgrounds - and give them an education that is closer to the skillset required in the industry. This way, we offer opportunities to those that do not usually receive them and also benefit in return, in the form of employee loyalty and expertise.

It is what has also allowed us to practice transnational localism, wherein globally, we set up offices and offer professional opportunities in rural areas as opposed to urban centres. These are moves guided by philosophies rather than growth metrics or strictly capitalistic impulses, and as such, would have been considered too out-of-the-box for any funding partner to agree to.

Ownership

This is an obvious one. In the absence of other entities backing your organization, the founding team owns the company outright. On the other hand, with a VC-backed model, equity gets diluted with every successive funding round. In monetary terms, this means that the founder of a small organization might technically be wealthier than that of a large but highly-funded organization, where founder equity has been diluted over time. This simplifies matters such as patents and intellectual property as well.

Sustainability

Without the pressures of the funded startup culture of today, an entrepreneur is free to grow a sustainable business and play the long game. Since a lot of the business strategies and methods adopted by startups are exit-minded, they are shortcuts in sacrifice of a sustainable model. This has the tendency to translate into a shaky business engine.

A venture capitalist might want your company to grow quickly and at a level that might seem premature. After all, for those funding the company, their main objective is to get good returns from their investment. This means that they will want you to scale even when there hasn't been enough validation of the business model from the market yet.

Chasing valuations and securing the next round of funding also becomes a pre-occupation that might take the founding team's bandwidth away from what should ideally be prioritized. It obscures the business's fundamentals in a way that holds leaders back from addressing critical concerns.

Funded startups often have the tendency to go into the red in a big way in the name of capturing market share. Bootstrapped companies happily avoid this problem since the very nature of the model necessitates that businesses have to be profitable.

The fact that the business is grown sustainably means that there is less pressure to adopt extreme and unsavoury measures such as conducting massive rounds of layoffs every time the economy hits a bust cycle.

By building on a solid foundation and a business model validated by the market, entrepreneurs can bypass these problems that are related to unhealthy growth models and shaky foundations.

Conclusion

While access to large pools of capital comes with swanky offices, stunning salary packages, and a variety of other perks, starting and growing with a solid foundation means that you can stay true to your vision and weather economic cycles in a more grounded manner. It tests and unlocks entrepreneurial creativity in a way that businesses with endless pockets are not subject to. And finally, while they are not tangible, the pride and fulfilment one gains from funding the business through self-generated cash flows is unmatched. And that's not something one can put a price on.