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 Bootstrapping article (business section) 

Introduction and Overview:


 * Bootstrapping in the business world is a method of financing which entails business owners using their personal savings and any revenue or cash coming in from first sales of the product/service. Businesses that bootstrap their funding tend to use little to no outside funding in order to launch their respective organizations.
 * Through bootstrapping, business owners or other aspiring entrepreneurs are enabled to fund their business without the need for things like venture capitalists or miscellaneous angel investors.

Stages for bootstrapping a business venture:


 * 1) Birth-stage: This is the first stage too bootstrapping by which the entrepreneur utilizes any personal savings or borrowed and/or invested money from friends and family to launch the business. It is also possible for the business owner to be running or working for another organization at the time which may help to fuel their business and cover initial expenses.
 * 2) Funding from sales to consumers-stage: In this particular stage, money from customers is used to keep the business operating afloat. Once expenses caused by normal day-to-day business operations are met, the rate growth usually increases.
 * 3) Outsourcing-stage: At this point in the company’s existence, the entrepreneur in question normally concentrates on the specific operating activities. This is the time in which entrepreneurs decide how to improve and upgrade equipment (subsequently increasing output) or even employing new staff members. At this point in time, the company may seek loans or even lean on other methods of additional funding such as venture capital to help with expansion and other improvements.

Types of companies that are eligible for bootstrapping:


 * 1) Early-stage companies that do not necessarily require large influxes of capital (particularly from outside sources). This would specifically allow for flexibility for the business and time to grow.
 * 2) Serial entrepreneur companies could also possibly reap the benefits of bootstrapping. These are organizations whereby the founder has money from the sale of a previous companies they can use to invest.

Different methods of bootstrapping:


 * Future business owners aspiring to use bootstrapping as way of launching their product or service should consider some of the following methods:
 * Using accessible money from their own personal savings.
 * Managing their working capital in a way that minimizes their company’s accounts receivable.
 * Cashing out 401k retirement funds and pay them off at later dates.
 * Gradually increasing the business’ accounts payable through delaying payments or even renting equipment instead of buying them.

Bootstrapping success:


 * When taking into account statistics provided by Fundera, approximately 77% of small business rely on some sort of personal investment and or savings in order to fund their startup ventures. The average small business venture requires approximately $10,000 in startup capital with a third of small business launching with less than $5,000 bootstrapped.
 * Based on startup data presented by Entrepreneur.com, in comparison other methods of funding, bootstrapping is more commonly used than others. “0.91% of startups are funded by angel investors, while 0.05% are funded by VCs. In contrast, 57 percent of startups are funded by personal loans and credit, while 38 percent receive funding from family and friends.”
 * Some examples of successful entrepreneurs that have used bootstrapping in order to finance their businesses is serial entrepreneur Mark Cuban. He has publicly endorsed bootstrapping claiming that “If you can start on your own … do it by [yourself] without having to go out and raise money.” When asked why he believed this approach was most necessary, he replied, “I think the biggest mistake people make is once they have an idea and the goal of starting a business, they think they have to raise money. And once you raise money, that’s not an accomplishment, that’s an obligation” because “now, you’re reporting to whoever you raised money from.”
 * Bootstrapped companies such as Apple Inc. (APPL), eBay Inc. (EBAY) and Coca Cola Co. have also claimed that they attribute some of their success to the fact that this method of funding enables them to remain highly focused on a specific array of profitable product.

Advantages to bootstrapping:


 * Entrepreneurs are in full control over the finances of the business and can maintain control over the organization’s inflows and outflows of cash. Equity is retained by the owner and can be redistributed at their discretion.
 * There is less liability or opportunity to accumulate debt from other financial sources.
 * Bootstrapping often leads to entrepreneurs operating their businesses with freedom to do as they see fit; in a similar fashion to sole proprietors.
 * This is an effective method if the business owner’s goal is to be able to fund future investments back into the business.
 * Besides the direct stakeholders of the business, entrepreneurs do not have to answer to a board of investors which could possibly pressure them into making certain decisions beneficial to them.

Drawbacks of bootstrapping:


 * Personal liability
 * Credit lines usually must be established in owner's name which is the downfall of some companies due to debt being accumulate from various credit cards and etc.
 * All financial risks pertaining to the business in question all fall on the owner's shoulders. The owner is forced to put either their own or their family/friend’s investments in jeopardy in the event of the business failing.


 * Possible legal issues
 * There have been some cases in which entrepreneurs have been sued by family or even close friends for the improper use of their bootstrapped money.

References
 * Because financing is limited to what the owner or company makes, this can create a ceiling which prohibits room for growth . Without the aid of occasional external sources of funding, entrepreneurs can find themselves unable to promote employees or even expand their businesses. A lack of money could possibly lead to a reduction of the quality of the service or product meant to be provided.
 * Certain investors tend to be well-respected within specific industries and running a company without their backing or support could cause pivotal opportunities to be lost.
 * Personal stress to entrepreneur or business owner in question.
 * Tackling funding by themselves has often led to stressful times for certain individuals.