By starting small and reinvesting profits, bootstrapped startups prioritise sustainable growth and operational agility over rapid scaling

Entrepreneurship is a dream journey for many young minds full of innovative ideas and pioneering thoughts. And many times, they are left to fend for themselves. Before the world believes in their ideas, entrepreneurs have to believe in themselves and their ideas first. For their entrepreneurial ventures to see the light of the day, entrepreneurs, therefore, first turn towards themselves and become their investors. This idea is known as bootstrapping, which is the process of developing a business with limited resources, without the financial and managerial support of an investor, more particularly an angel investor. So, in this case, the entrepreneur starts his business with little or no money, all the while ploughing back the funds generated by customer-driven business into the operations to achieve growth. A bootstrapped startup is characterized by full control of the founder over the business without the pressures of outside investors.

This provides the founder with elbow room to be flexible and agile in decision-making. The challenge to sustain the startup brings out creativity and resourcefulness in problem-solving. Combined with lean operations and focus on revenue generation, the founder manages to survive and thrive which leads to high founder satisfaction, self-reliance and long-term sustainable growth.

Although it is difficult to dampen the spirit of entrepreneurship, the statistics sure leave us disheartened. According to an article in Harvard Business Review by Prof. Tom Eisenmann, nearly 63 per cent of startups never end up with a positive return. By another metric, only 15 per cent of startups ever see through their first round of funding. So, in situations where the survival of startups is difficult, being bootstrapped can make it even harder. While bootstrapping provides entrepreneurs with increased financial independence and control, there can be several disadvantages. Liquidity crunch is one of the major disadvantages of a bootstrapped enterprise. A steady flow of funds is essential for any operation and all the more important for a startup.

A bootstrapped company has to generate enough profits to cover the daily operational expenses and more often than not, because of lack of financial cushion, it is difficult to withstand sudden economic crises, disruptions, and market downturns. Secondly, it is difficult for bootstrapped companies to attract and hire talented employees with limited budgets. Additionally, in such situations, founders end up multi-tasking even though they may lack specialized skills in some of the key function areas of a business, like production, sales and marketing, new business development, and daily operations, which may affect long-term growth prospects.

So, are bootstrapped companies less valuable than funded companies? This is a quintessential question. Well, to answer this, let’s try to see what is value. For starters, a company is valuable if, irrespective of its size, can develop a product or service and generate revenue.

By doing so, over some time, the revenue base starts helping the company to grow organically and lo behold, it manages to cross the ‘valley of death’. So, a company that can grow with its revenues and survive and sustain on a long-term basis is far more valuable than a funded company that can show growth metrics only on the backing of funding received, which may be short-lived, if it is unable to generate revenue-backed growth quickly. Therefore, in a start-up world where 9 out of 10 startups fail, bootstrapped startups have a greater chance of survival as they are 55 per cent more likely to establish positive cash flows within the first three years of operations and generate a sustainable revenue stream.

This makes their failure rate 47 per cent lower than VC-funded startups. What one cannot ignore is the fact the value of a bootstrapped startup also comes from the intangible qualities of the founder like determination, passion, grit, resourcefulness and agility. These qualities are the mainstay of any bootstrapped startup that navigates it through the uncertain world of entrepreneurship. They are like the secret ingredients for the success of a bootstrapped startup – a battle between the wit and creativity of a founder versus the deep pockets of a VC. By focusing on customer acquisition and revenue generation, bootstrapped startups demonstrate their qualities of innovation, resourcefulness, flexibility and agility, in navigating the uncertain world of entrepreneurship. By keeping themselves lean and using cost-effective strategies, bootstrapped startups facilitate higher profit margins that in turn lead to long-term sustainable growth.

In a startup world that is fixated with high growth fancy ideas and flamboyant entrepreneurs, bootstrapped startups stand out as beacons of efficiency, proving that sometimes slow and steady truly does win the race. 

(The writer is a financilal analyst; views are personal)