By: Gittan Alicia | Contributing AOJ Journalist
While the idea of companies starting from nothing and growing into something big sounds unusual and rather impressive, most companies start from nothing. Therefore, it’s no surprise that most of today’s famous companies arose from nothing, but rather that they’ve come so far. However, instead of focusing on how far these companies have come, the media acts surprised that they began with so little, painting a false picture of the world of business. The truth is, that like the biggest companies of today, most companies start from nothing, and many small companies are going down the same roads of starting off right now that these bigger companies have already been through.
Unless someone won the lottery, was gifted a massive amount of money, or already had the money to spend on a business, they will have to start their business from little to nothing. This means the individual will need to figure out how they are going to pull together money to meet bills for and expand their business. Business owners could bring together such money either by bootstrapping or pulling together money from outside sources. More commonly a business owner would choose to bootstrap even though it is oftentimes more difficult because it provides many advantages.
What Exactly is Bootstrapping?
Bootstrapping in the world of business is relying on as little money as possible to build a company. This means figuring out how to cover the costs of maintaining and building your company with what one has in hopes of eventually building up to success. This is the common route that businesses must take simply because all startups don’t yet have a reputation or customer/audience base to generate much revenue and therefore have very little to thrive upon. It’s no surprise that given the difficult task of bootstrapping, many startups end up failing.
Why do Most Companies Bootstrap?
While bootstrapping isn’t the only way to start a company and is in no way easy, it certainly has many benefits when compared to other methods. Some of the most notable of these benefits are fewer restrictions on how one runs their business, required focus on the things that will actually get one’s business somewhere, and one gains a greater understanding of their business. However, there are several disadvantages to bootstrapping that require lots of work on one’s own part to overcome and bootstrapping certainly isn’t easy. Regardless of these advantages or disadvantages most individuals only option is to start a business by bootstrapping due to a lack of capital and/or inability to gain capital through outside sources.
Bootstrapping provides the best guarantee that an individual can run their business the way they want to, making it a very desirable approach to starting a business. When one bootstraps their business, they’re using their own money instead of money from outside sources. This means the individual is not obligated to meet expectations of whoever funds them, and can instead focus their resources on what they believe is best for their company. However, it is still crucial that the individual meets the needs and desires of their customers and employees to be successful. After all, customers bring in revenue for a company and employees are an important factor in running a company.
When one’s own money is at stake, they’re bound to be more careful about how they spend it, whereas, if one is using someone else’s money to run their business, there’s less incentive for them to be careful. This gives bootstrapper’s a great advantage over other companies because they’re required to focus on the things that will actually get them somewhere so they can make a profit and get by. Whereas businesses who aren’t bootstrapping and using money from investors are more likely to expend their resources by investing in things that are more expensive and may not necessarily make them a profit.
Bootstrapping is a great way to gain a greater understanding of running a business, which may be great incentive to some. The reason bootstrapping helps an individual and a cofounding team if they have one is because in the early days of bootstrapping, the company won’t have the capital to hire people to carry out specific sections of the business, for instance, one likely won’t have the funds to hire a head of marketing. Therefore, the founder and co-founding team of a business will be required to carry out such functions on their own, granting them a greater understanding of their business.
Most companies are forced to be started through bootstrapping due to a lack of capital or an inability to outsource, and while bootstrapping provides them with several advantages, some of which I’ve already described, there are several disadvantages to bootstrapping as well. One of the most obvious of these disadvantages is the lack of capital when starting out. This lack of capital requires more work on one’s own part and a plan to make profit as soon as possible. Another major disadvantage of bootstrapping is a lack of networking connections and credibility. Having outside sources provide a great opportunity for connections within one’s niche. Without outside sources one is on their own to build connections and figure things out, and the lack of outside sources often makes a website less credible, meaning the company will need to spend more time building the trust of customers.
Entreprenoria. (n.d.). The Advantages and Disadvantages of Bootstrapping Your Company. Retrieved from https://entreprenoria.com/finance/bootstrapping/the-advantages-and-disadvantages-of-bootstrapping-your-company/
Gazdecki, A. (2016, May 27). 5 Benefits Of Bootstrapping Your Small Business. Retrieved from https://smallbiztrends.com/2016/05/benefits-of-bootstrapping.html
Towers, P. (2017, May 25). 5 Benefits of Bootstrapping Your Startup – Task Pigeon. Retrieved from https://blog.taskpigeon.co/5-benefits-bootstrapping-startup/
Chan, J. (2019, February 26). Bootstrapping Business Entrepreneurs – Start a Business Without Funding. Retrieved from https://foundr.com/bootstrapping-entrepreneur/
Big Businesses of Today That Started off Bootstrapping
Like the many small companies starting off today, the biggest and most famous companies started off bootstrapping. In many cases, the situation of the founders at the time had required them to bootstrap their startups, which have grown into the well-known companies they are today. Quite literally, today’s biggest companies had grown from nothing into something big, but it’s often forgotten that almost all companies start from nothing. So, we’re going to focus on the bootstrapping methods such companies went through in their beginning and how they compare to the small startup companies of today.
Apple, famously known to have started off in a garage, is one of many big companies in today’s world. Apple wasn’t the only garage startup of its time, but the fact that Apple made it big from such a low start is what gives the company all the attention. Started by Steve Jobs, Steve Wozniak, and Ronald Wayne in 1976 with very little money and almost no room for mistakes or failure. The beginning was very risky for Apple and being not well-known, Apple struggled to find companies who would purchase and sell the Apple machines, and also struggled to get the parts needed. Apple eventually found a buyer and affordable parts to create the first Apple machines, however, Apple only had 30 days to carry out the order from their buyer, a risk too big for Ronald Wayne. At this point, Ronald left Apple, and after his leaving, the two Steves managed to complete the order, marking the first ever success for Apple. Be that as it may, had Apple failed to complete the order or get the required parts, the company would’ve been over, as “Jobs and Woz didn’t have two nickels to rub together,” according to Robert Wayne.
Almost every company starting out and bootstrapping today faces the same problem the two Steves faced, having little to no capital or credibility. A lack of capital makes getting resources and materials required for one’s business difficult, as demonstrated by Apple, and makes others less willing to risk entrusting a company that is unable to pay back should something go wrong. Lack of credibility as a starting off company also increases the difficulty of gaining support from others. Having no track record and no capital as a company makes it a huge risk for others to invest in or support one’s company. Such was the case for Apple, but through perseverance and persistence, Apple was able to gain the support it needed and to sell its product. However, while Apple may have been able to do this, not all companies have been able to, and today not all companies will be able to either.
Rawlinson, N. (2017, April 25). History of Apple: The story of Steve Jobs and the company he founded. Retrieved from https://www.macworld.co.uk/feature/apple/history-of-apple-steve-jobs-mac-3606104/
How would Companies Pull Together Money from Outside Sources?
Pulling together money from outside investors for one’s company is no easy task, but is certainly an option, and one of the ways one can start a company. Pulling together money from outside sources typically involves drawing in investors with one’s business plan or current business status. As a starting company, outsourcing is much more difficult because there’s no track record or current status of the business for an investor to go upon. Meaning, the investor would only be sold to one’s idea if they were convinced and believed there was great enough potential in the company for them to invest.
Starting companies can gather money and resources from outside sources to further their business through a business incubator, accelerator, crowdfund, or something of the like. All of these options provide support, services, and/or funds to assist a startup business. The role of a business incubator in supporting a startup business would be to help a startup succeed by providing virtual and on-site assistance to a company through a collaborative environment. The role of an accelerator in aiding a startup business would be similar to an incubator, but faster paced and more intensive. The goal of accelerators is to provide education, mentorship, and financing to accelerate the start of business by compressing what would be many years’ worth of learning on one’s own into a few months. Crowdfunding’s role in supporting a business would be strictly to provide capital through public investment in return for future buy-in to one’s company. There are many other options businesses use to aid their startup as well.
Hathaway, I. (2016, March 1). What Startup Accelerators Really Do. Retrieved from https://hbr.org/2016/03/what-startup-accelerators-really-do
Riggins, N. (2019, January 1). What is a Business Incubator? Retrieved from https://smallbiztrends.com/2017/06/what-is-a-business-incubator.html
Westwood, R. (2014, October 8). How To Start A Business With No Money. Retrieved from https://www.forbes.com/sites/ryanwestwood/2014/10/08/how-to-start-a-business-with-no-money/#29d7ce2e57ad
Why Would a Company Pull Together Money from Outside Sources?
Support from outside sources can hugely beneficial to startup companies who have so little capital, knowledge, and resources to build off. Outside sources can provide advantages such as preserving a company’s internal financial resources, a collaborative environment, and increased room for growth. However, such advantages come at several costs companies must consider.
By gathering the support of an outside source, a company may gain preservation of their internal financial resources that could be used later on should a situation call for it. Not only that, but should a greater opportunity for investment arise, like a lower interest loan, a company could use financing from its external (outside) sources to pay for it. Companies could also improve their credit rating by investing the internal financial resources they’ve reserved into certain business activities.
Some outside sources provide companies with a collaborative environment to aid a company through any challenges it may face. Such an environment provides a company with additional resources and approaches to its challenge that may not have been accessible had the company been on its own. A collaborative environment may also provide networking opportunities and allow individuals to review and offer creative ideas for each other’s companies.
Outside sources also have the advantage of granting greater room for a company’s increase in growth. The services and knowledge provided by outside sources like incubators or accelerators may allow a company to grow quicker by acting as a guide. Other outside sources may provide a company with funds that allow a company to invest in opportunities for growth that the company otherwise may not have been able to afford.
While all these advantages I’ve listed are certainly beneficial for a company, they come at a cost. Seeking out the aid of an outside source as a startup company reduces some of the freedom an individual has to run their company. For instance, taking money from investors for one’s company may require the company to meet the expectations and demands of the investors for continued funding. Ownership of one’s company can also be lost if one gets the funding of their business from investors and shareholders, which requires one to give up a portion of their ownership in the company in exchange for funding. Some outside sources may also include the risk of one’s initial contribution to the source like an incubator or accelerator, and the possibility of no return on one’s contributions.
George N. (2019, February 12). The Advantages & Disadvantages of External Financing. Retrieved from https://smallbusiness.chron.com/advantages-disadvantages-external-financing-10033.html
Why Do Some Businesses Succeed While Others Fail?
It would be great for businesses if they could just look up, “How to make my business succeed” and be given a straight answer, but making a business succeed is not quite so easy or straightforward. There are several factors that play into whether or not a business will succeed, some in control of the one running the business and others not. Making a business succeed and determining what will make a business succeed is especially difficult because the factors and circumstances change depending on the type of business. However, there are some general factors that can be applied to just about any company on its outlook for success.
One of the biggest and most important factors that contribute to a company’s success is the interest and necessity of what’s being offered by the company to the public. For instance, if someone starts a shoe company in the midst of several other shoe companies with no unique aspects to their shoes and company, the need for shoes is already met. There’s nothing of interest being offered to the public and therefore, the company would probably fail. The same goes for any other company, if a company has nothing of interest to their customers and isn’t providing something of necessity to the public, they’ll likely fail.
The drive and commitment of an individual running a company is another very important factor in the success of a company. There’s no way a company will succeed if the one’s running the company aren’t committed to making the company run and aren’t focused on how they’ll make the company run. Running a company certainly isn’t easy, but a company won’t succeed if the one’s running it give up on it because it’s too much for them.
Names and company branding are actually a significant factor in the success of a business as well. Lists of successful companies today who changed their names and/or logos can be found online because of how impactful this factor is on a company’s customers or audience. Some names are more memorable and meaningful than others to people, and people are less likely to care to remember and recognize a company with a long name that doesn’t make much sense. The same goes for logos; if a logo is too overwhelming and complicated, people are less likely to remember and recognize it than if it were simple.
Of course, there are several other factors that could be applied generally to the success of businesses and many more that could be applied to specific business niches, but there’s so many it’d be impossible to list them all. This is part of what makes running a business so difficult, evaluating the factors and figuring out how to overcome them, and even then, not all are avoidable. Even the biggest corporations of today could’ve failed somewhere on their way to success had they evaluated one of these factors wrong or been caught in an inescapable circumstance.