Bootstrapping: Definition, Stages, Advantages, and Disadvantages

Bootstrapping is one of the most popular methods of business or business financing. Check out this article for complete information.

In building a business, capital is one of the important things that must be prepared.

Usually, there are two types of business people in collecting business capital, namely by attracting investors and others using the bootstrapping method in setting up their business.

Well, in this article, KoinWorks will invite you to know more about the bootstrapping method, starting from the understanding, of stages, advantages, and disadvantages.

What is Bootstrapping?

Bootstrapping is the process of building a business with personal capital without attracting investors.

Bootstrapping is a process of building a business from scratch without attracting investors or external capital.

Generally, this method is used to finance small businesses by purchasing and using resources through the business owner’s capital.

Bootstrapping is a great choice for new business owners who don’t want to go into debt.

However, it should also be noted that business owners need to design appropriate business development strategies to minimize risk and use funds for vital sectors in the business being developed.

For this reason, there are several stages that must be passed by a business using the bootstrapping method.

Stages of Bootstrapping

Almost all successful bootstrapping efforts have gone through 3 stages, namely:

Stage One: Personal Funding

The first stage is starting a business using personal savings or income .

This type of business is usually started from a small business where the business owner also works in its business operations. For example, micro convection businesses, family restaurants, and so on.

In addition, because bootstrapping is a method that does not require large costs, business owners can develop ideas and build the most basic product or service of the business.

In the beginning it may not be perfect, but it will actually help business owners to ensure that the products they produce can be accepted by the market and generate income quickly.

Stage Two: Funding from Customers

Furthermore, when the business has started running and starts generating revenue from customers, the business owner has passed the survival mode stage.

That is, they can start to manage profits from venture capital simultaneously.

This stage is also the stage to develop the business and make it generate higher profits through more aggressive business marketing .

Stage Three: Credit

Generally, business owners begin to enter stage three when the cash flow has been regular and begin to develop their business professionally by adding staff, equipment, or improving services .

Therefore, they dare to take business loans or build relationships with investors in order to develop business capital that is greater than before.

Of course they must have calculated whether their business income is able to cover their business debts or not.

Advantages of Bootstrapping

Each method used to set up a business, of course, has advantages and disadvantages.

The following are the advantages of business owners who use the bootstrapping method.

1. Owner Has Full Control

As the full owner of the business that you build, you are free to determine the direction of the business.

In contrast to businesses that obtain funding from investors, business owners who use the bootstrapping method can focus on doing the best for their business without worrying about intervention from others.

In addition, as a business owner, you are also more flexible in determining the direction of the business if you feel it is necessary.

2. Developing Entrepreneurial Spirit

The advantage of using the bootstrapping method is to develop an entrepreneurial spirit.

How come?

You as a business owner are required to be able to design strategies and goals for your business, which indirectly requires you to make decisions independently and be responsible for the decisions taken.

3. Greater Profit Potential

With limited bootstrapping funding , it actually makes you have the potential to get bigger profits, you know.

Because, you don’t need to share profits with venture capital or investors considering that business capital comes from private funding.

Disadvantages of Bootstrapping

In addition to the advantages, building a business using the bootstrapping method also has several disadvantages, including:

1. Limited Resources

Minimal capital will also have an impact on slow business growth.

Because by choosing bootstrapping, resources both in the form of money and humans are very limited.

This causes your business to grow not as fast as other businesses that have more adequate resources.

It is true that when the income comes in large amounts of capital and staff can be added, but still not as fast as other businesses that receive a large injection of funds and encouragement from investors.

2. No Business Relationships

Investors usually have extensive business relationships. This will have a positive impact on the business promotion activities they fund.

On the other hand, businesses that use bootstrapping methods need extra effort to build relationships. Because, without extensive relationships, the development of a business will definitely be disrupted.

3. At Your Own Risk

Businesses with the bootstrapping method have full control over their business. Therefore, all the risks experienced will be borne by yourself.

If it is profitable, all profits will be fully owned by the business owner. On the other hand, if they fail or go bankrupt, they themselves will bear it.

The financial risk for businesses using the bootstrapping method is indeed great, so the plan and design process must be really mature.

So, we are at the end of the discussion about bootstrapping. How? Are you more interested in using the bootstrapping method or not?

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