The biggest challenges faced by small business owners is start-up capital. Many great business ideas never come into reality due to funding related issues.
However, the unpredictable success of few high tech start-up is revolutionalizing small business funding.
Small businesses are now widely funded by Angel investors and venture capitalists. Even developing countries have subscribed to small business funding paradigm with moderate Angel investors network.
Small businesses now have more investors compared to decades ago.
The New challenges might not be business funding but small business failure. Many small businesses fail despite been backed by venture capitalists.
The problem is how to make small business profitable.
For every start-up to survive, it must make profit. Bootstrapping is necessary for small business profitability.
Many businesses are congratulated for accepting venture capitals. However, the real challenge could be finding buyers or client for their product or service. Research has shown that many small business produce in anticipation of demand compared to the lean start-up method.
Top 10 reasons to bootstrap
Funding your start-up with personal savings or family income could be frustrating especially when it takes longer to break-even.
Experience gain during the bootstrapping start-up phase could be invaluable as it prepares small businesses to grow faster when finally raised venture capital.
Bootstrapping experience create a perfect entrepreneur as the inner and improvising capabilities of a founder are unleashed. Bootstrapping means an entrepreneur can work on budget which is an essential skills for managers.
2. Strong management team
One of the core requirements by most venture capitalists to fund a small business is strong management team.
An ideal management team should include experienced technical and non technical personnel from diverse backgrounds.
Bootstrapping draw other bootstrappers and great talent that are ready to accept low pay to build the business. The end result is a poll of talents.
3. Better funding opportunities
Experience and strong management team gives the start-up a leverage in negotiating with funders.
Ryan Smith, the founder of Qualtrics who had raised nearly a quarter of a billion in venture capital within the last few years after bootsrapped for a decade was happy to successful build his business to profitability before sourcing for fund.
Why Ryan was successful at raising millions within few years was his ability to work on lean budget for a decade.
Profitability is key to the survival of any small business. Bootsrappers understand that their ability to break-even early is vital to the survival of the business.
Why many small businesses which eventually collapsed never came close to profitability, bootstrapping quicken profitability.
5. Culture and value
Every founder has a vision of an ideal working environment and value of the establishment.
Bootstrapping helps small business founders to build a business of their dream.
In contrast, once a new start-up attract venture capital early, in some cases, the founder is forced to leave for someone that can manage a complex work environment.
In some cases, the product and innovation strategy of the business will be sacrificed for high market share.
6. Moderate expenditure structure
Many small businesses that collapsed were accused of financial recklessness. In most cases, business that is unable to break-even for years spend big on non-essentials.
Such expenses would be avoided if the owner did actually bootstrap or use personal resources.
7. Attracting the right talent
Bootstrapping attracts the right talent to a start-up. The right talent for a start-up might not necessarily be a super achiever or an experienced person.
Jessica Stillman wrote on INC about why super successful career people rarely replicate such talent working in a start-up. She noted that at a start-up, employees writes rules why at a big corporations, employees follow rules.
Small business bootstrapping might not afford hiring a super successful career person. In most cases, start-up hire and train inexperienced people. Fortunately, such people perform better than their more experienced counterpart in a start-up.
Ryan Smith says "Sometime it's not until things get really tough that we will find the gear allow us to shift into overdrive- that is what bootstrapping really does for you".
Working on lean budget enhance creativity. Managers automatically learn to improvise.
9. More control
Bootstrapping afford start-up owners more control over the business and partners.
Once a budding business accept venture capital, the short term goal would be 'how to please the investors' instead of building unique and innovative business.
10. Solution conscious
Every business exist for a purpose which stakeholders expect it to exceed.
Bootstrapping afford a business to concentrate on achieving that expectations because most bootsrappers aim to build a business that really have impact.