The challenges of bootstrapping your business

We've explored the benefits of bootstrapping previously. Thie time, let's look at some of the challenges that come with bootstrapping your business.

Cash crunch 

The fact that your business is bootstrapped means that cash flow crunch is a nemesis that you are constantly battling, at least until you've built a level of success where you can afford to take your foot off the pedal just a bit. While this cultivates a sense of frugality and a do-more-with-less approach, it also means that you're forced to fight tooth and nail for your business to survive all the time. Founders often find that the profits generated by their business don't meet the costs. Given the fact that 90% of businesses fail, this is quite a scary prospect for business owners.

Naturally, funded business owners have an easier time since they have access to large pools of capital and don't have to focus their efforts relatively as much on keeping the lights on.

Risk concentration and control

This is a simple one. A funded model distributes risk among the founder(s) and investors. However, in a bootstrapped model, all the capital is supplied by the founder(s). Of course, this is a great advantage when the company is doing well. But it also makes the prospect of failure that much more daunting. Because if the company fails, the losses are completely borne by them.

It is an obvious fact of the funded model that ownership is distributed among more members than the founding team. By exchanging stakes for their investment, funders and founders share equity. But this naturally restricts the founders' control over the company and their freedom in decision-making. In fact, it is not unusual for founders to get fired from their own companies. A famous example is Steve Jobs getting ousted from Apple in 1985. The lack of control can also cause the company's founding vision to be diluted over time. Let's consider the Apple example again. It wasn't until the founder returned to the company and aligned the company with its vision that it started to enjoy incredible success.

Publicity and marketing 

In today's business landscape, being a funded or listed company gives an organization a lot of media attention that bootstrapped companies cannot hope to receive. As mentioned earlier, since people are enamored with valuations, for VC-funded businesses, every successive round of funding is a news story that does the rounds. On the other hand, Bootstrapped companies often celebrate their revenue milestones quietly, away from the eye of the media.

Listed companies receive even more extensive media coverage because they have individual shareholders, often numbering in the millions. Since the wealth of these masses of investors is connected to fluctuating share values, they need a continuous stream of information on the listed companies' financial health, business strategy, moves for expansion, etc. Financial newspapers and media outlets meet this demand and cover the companies in detail.

Lack of support 

It's a common joke in the world of business that the title CEO stands for Chief Everything Officer. However, this is especially true when bootstrapping. Lack of access to large pools of capital means that hiring must happen slowly and carefully since bootstrapped companies don't have the financial cushion that allows them to make mistakes in recruiting. Founders early on cannot always afford to surround themselves with a bunch of employees to share their workload. As a result, they will find themselves doing a wide range of tasks across functions and departments.

This is also true of mentors and guides. Funded companies are able to bring on business veterans to guide them thanks to their VC ecosystem of entrepreneurs, business moguls, and expert investors. VCs also encourage the startups they invest in to collaborate with each other, and frame deals and agreements that are mutually beneficial.

The big picture 

So, we've established that bootstrapping a business is no walk in the park. Entrepreneurship demands a lot of sacrifice, determination, and perseverance, and bootstrapping is even more so. However, the founders get to do things on their terms and choose the time horizon for their growth milestones rather than having it imposed on them by others. 

To understand the benefits of bootstrapping your business, read our piece here.

Also, read our pieces on the bootstrapped businesses that make up the backbone of the German economy or the three Indian business empires that you had no idea were bootstrapped.