There is an expectation that to start a business, you’ll need to borrow money. You might turn to venture capital, peer-to-peer lenders or the bank. And while these methods have become just as common as taking out a new credit card, it’s not always the best for your business in the long run.
Many entrepreneurs forget the trade-offs that come with some of these lending methods. Venture capital has become glorified in recent years through big Aussie success stories like Canva and Atlassian.
But you need to remember that an agreement with a venture capitalist gives them equity in your company, meaning you don’t have control.
There’s a chance you could lose corporate autonomy, the ability to control your own vision for the company, and you might end up finding someone who funds you that simply isn’t the right fit for your business.
So what’s the alternative?
It might not be the easiest path to go down but, in my experience, bootstrapping – starting your business with your own money and reinvesting all revenue back into the company – can have huge benefits.
You have a lot more control over your product and the vision of your company, but it does mean you’ll need to put in the hard yards. You will be reliant on your customers to keep the lights on, so like it or not, you will be at their whim.
You might find yourself doing a fair bit of custom work to make sure they’re happy, which can be time-consuming You need to be intelligent about how you split your time and go after growth opportunities. Work to build your customer base and always remember that existing happy customers are the best marketers you can get.
You will also need to be intelligent about managing your money, particularly if you start with a credit card – as Atlassian did. You’ll need a decent runway of savings and maybe even have another job on the side to help make ends meet while you’re still pulling a product together.
While it’s hard work, bootstrapping is really rewarding and it’s an amazing feeling when you are able to build products and get people onboard without a huge runway, a massive burn rate or a big team. It teaches you a lot too. Bootstrapping acts as a threat management system – you learn how to pare back absolutely everything you don’t need to survive, which is an invaluable skill.
It’s also helps hone in your value proposition and intelligently evaluate potential markets and products. It means that revenue is your immediate priority – you can’t spend months or years building a product without knowing whether it will be a hit – as you need turnover to fund your business or risk losing it.
Being in complete control, and being able to reflect on the result of efforts, is an amazing feeling.
While it wasn’t always easy or fun, especially during the early stages of the business, I have learnt more in a few months of bootstrapping my business than any number of business courses or books could ever have taught me. If you are thinking of bootstrapping the biggest lesson is that it’s okay to fail – it’s not for the faint-hearted but it is well worth it in the long run.
Seb Pedavoli, Creative Director and Co-founder, Proxima