Why to bootstrap (self-fund) your tech startup

by Bob Singor ยท Updated November 09, 2020

If you have an idea for a product or service you believe can really succeed, budget is sure to be one of your first considerations in getting it off the ground. We have all heard the saying "it takes money to make money," and you may assume you need a great deal of capital to launch your startup. However, you have probably also heard about the unicorn startups that built their empires from nothing - like Mailchimp, who have reached a valuation of $4.2 Billion without any external funding. While the scale of their success may be rare, launching a startup without raising capital - known as "bootstrapping" - is possible if you have the right tools and the right outlook. If you want to learn more about the possibility of developing your idea without losing time and equity in the process of funding it, read on to learn more about the requirements and rewards of bootstraping your startup.

Skills: What you will need to make it work

To succeed in building your startup without external funding, you will need a skilled, well-rounded founding team. When working with investors or accelerators, many times their funding comes with expectations, but also support and networking opportunities. Boostrapping requires you and your founding team to determine the vision and course of the company, solve problems and find connections yourselves.

Due to the diversity in the skills needed and the sheer amount of work it takes to get a startup off the ground, most startups will need more than one person to create a succesful founding team. Of course, if you do have all the necessary skills it wouldn't be unthinkable to start out by yourself. These are the skills I believe are critical in the earliest stages of development:

  • Leadership and communication
  • Technical expertise (coding ability)
  • Graphic design
  • Writing and storytelling (for marketing)
  • Financial knowledge

In this list I did not address management skills because those are not quite in the picture yet when working as founding partners. However, strong management skills will become essential as the startup grows and you begin to recruit talent for the company.

Working at a minimum: What you won't need to make it work

Just like living on a personal budget makes you re-evaluate what you need and what you don't, launching a startup without external funding challenges you to determine what the real priorities are and how to use your limited capital to meet your goals. The more unnecessary spending you can avoid the better, since the lion share of the profits in the first years will need to be reinvested into the company.

Focus on cash flow

There are many key performance indicators (KPIs) startups track to measure their progress, each providing part of the picture of the company's performance and efficiency. Startups who launch with external funding can often dedicate a considerable period of time to refining their product, business plan, and marketing strategy before switching gears to assessment. If you launch your startup supported only by your own funding and resources, you must immediately focus on revenue to stay afloat. This means you will need to get a basic but high quality version of your product on the market as quickly as possible. The work done in the first year to improve the product itself, the market fit and the marketing strategy lay the foundation for scaling the business in the future. For OpenBook, a subscription-based startup, I have set the goal of reaching $10.000 monthly recurring revenue in the first year. I believe this is an attainable level of performance to acheive and a reasonable goal for most bootstrapped startups.

Equity

Aside from the satisfaction of seeing your hard work bear fruit, one of the most attractive benefits of bootstrapping is that you (as an individual or as founding partners) retain complete ownership and autonomy in the business. If you choose to launch your startup without external funding, you have the freedom to determine the vision of the company and pursue it the way you think is best, whatever unanticipated changes that may include. Investors often require a seat on the board or apply pressure on you to make an exit or go public. If you have a vision and are up for the adventure of finding the path to success, the flexibility of maintaining full equity is a major asset.

Final Thoughts

Bootstrapping was a natural choice for me. In the American startup culture, it seems looking for funding is so normal it is often assumed that if you launch a start-up you are searching for investors. Having grown up in the Netherlands, I tend to naturally take the more conservative aproach to building businesses that is common in the Dutch culture. You start with nothing and find a way to create value. From there you scale your company.

If you can put together a strong founding team, have a clear vision and are dedicated to the work of building your startup, bootsrapping can allow you to launch and become profitable faster while also maintaining full autonomy of your company. You may still choose to seek external funding at a later stage in development to support scaling, an exit or going public. Approaching investors after growing your company to a level of success will open many more doors to these partnerships.