We all love to share success stories that celebrate those tenacious entrepreneurs that build global brands with nothing but their wits, hard-earned money, and undying determination. In that spirit, here are some examples of wildly successful companies with surprisingly humble and difficult beginnings:
- In 2000, co-founders Ben Chestnut and Dan Kurzius started nurturing Mailchimp as an in-house project in their design firm. Today, Mailchimp has become a $12 billion leader in the email marketing industry.
- Shopify founders built the platform from the ground up and ran it for six years on its own earnings without taking on debts or investments. The company now has a $44.09 billion market cap.
- Founder and creator Nick Woodman moved back with his parents to save money and make the GoPro project work. Woodman’s innovative camera design is now a billion-dollar household name.
- Lynda Weinman, the creator of Lynda.com, started by designing educational content for her students. Over time, this evolved into tutorials and, eventually, a rich content library. She sold her work to LinkedIn for $1.5 billion in 2015.
- Sara Blakely started SPANX with only the $5,000 she’d saved up from her job as a door-to-door fax machine salesperson. SPANX’s first year in business topped $4 million in revenue, and things only took off from there. Blakely is now a renowned self-made billionaire.
The list of success stories like these goes on and on. But you can’t help but wonder about the untold stories — those start-ups that didn’t quite make it. Start-up bootstrapping has its ugly side too. And before you pour all your savings, heart, and sweat into a new business, it’s important to understand what you’re getting into.
What is bootstrapping?
Bootstrapping means funding a business without external financing (loans, investments, lines of credit, etc.). Bootstrappers typically tap into their own savings, income, personal loans, 401(k)s, and the generosity of their friends and family to fund the launch and growth of a new business.
A majority of entrepreneurs actually launch their small business ventures with bootstrapped money. About a third of them do it with less than $5,000. And while some bootstrap throughout the business’s lifecycle, others take on debt and investments along the way to accelerate growth.
The allure of bootstrapping
Some businesses and entrepreneurs are perfectly suited for bootstrapping. For instance, self-funding makes sense for unproven early-stage start-ups that would have difficulty securing outside financing anyway. It's also ideal for small businesses, such as sole proprietorships and professional services, that don't require a large capital influx to get off the ground. Also, serial entrepreneurs with a wide investment portfolio may not need outside funding to launch a new business.
Across the board, bootstrapping has a strong allure. Let’s look at the most attractive benefits of bootstrapping and why you’d want to self-fund your start-up:
Risk-free funding
The only risk that bootstrappers face is losing their own money if the business fails. There are no investors, lenders, or benefactors to worry about.
Full control of the business
Bootstrappers are their own bosses and call all the shots in their businesses. The entrepreneur can steer the business in whichever direction they please without seeking approval from investors, partners, or stockholders because there aren't any. Additionally, the entrepreneur can preserve and cultivate the company’s values and vision unimpeded.
Promotes creativity and innovation
Since a bootstrapped business runs on limited funds, the owner is forced to find creative new ways to solve expensive problems. Bootstrappers usually DIY everything, from product development and production to sales and marketing. DIYing teaches entrepreneurs valuable lessons, brings out their creativity, and keeps them more in touch with the business.
The dangers and limits of bootstrapping
Despite its tempting rewards, bootstrapping can be a dangerous way to run a business. Building a business from one’s own pocket is undoubtedly a tough uphill battle. Here are some of the things that can go wrong if you choose to bootstrap your business from start to finish:
Running out of money
Running out of cash is the number one reason most start-ups fail. With bootstrapping, you run the risk of grounding out your cash flow since you’re dealing with a limited source of funds. What happens when you exhaust your savings before the business can stand on its own or a disaster strikes and drains all your money away? In such cases, you may have no choice but to close shop.
Burning out
Bootstrapping can take a heavy toll on your mental, emotional, and physical well-being without you even realizing it. You might have to make some big sacrifices to keep the business going. We're talking selling personal belongings, taking out a second mortgage, or working extra jobs to get the much-needed business funds. Plus, you’ll likely end up working long hours on the business to cut costs and keep the ball rolling. All this can be exhausting, frustrating, and discouraging, especially if the results don’t reflect the effort.
Limiting business growth
Besides cash flow risks, bootstrapping may also limit your business’s potential for growth. Since most of your money will go into keeping the business afloat, there'll be little to no cash left over to seize opportunities that fast-track or fuel growth. For instance, you may lack the financial confidence to pitch to large clients, consider business expansion, hire more workers, or make drastic changes to the business.
Making a compromise
There’s nothing wrong with bootstrapping. In fact, it’s a popular, enlightening, and immensely rewarding gateway into business. But, and this is a big “but,” it can be risky, tiresome, and slow to bootstrap a start-up from its infancy to a profitable business. That is unless you have a virtually bottomless cash reserve.
Bootstrap your business for as long as possible, but consider taking on a partner, an investor, or financing when your cash starts to run low or you can't afford essential business purchases. The main benefit of financing or having an investor is the availability of cash on demand. That means your business won’t starve or stagnate due to a lack of capital.
The beauty of business financing is the many different routes you can take. For instance, you can opt for a revolving line of credit to supplement your working capital, a commercial real estate loan to purchase or develop a new business facility, or asset financing to equip your business with essential tools.
And the good news keeps coming. Lendzero can help you explore all the financing solutions your business can readily utilize. We check your business’s qualifications for various financing products with multiple lenders, banks, and funders and present you with a neat list of pre-qualified options. We also negotiate financing terms with the lenders on your behalf to ensure you get the best deals too. All you have to do is sign up and fill out a few forms, after which you can easily check and claim the incredible financing deals within your reach.
