Over the past several years a new economy has risen out of the remains of the dot-com bubble. Between that bubble bursting and the later uncertainty provoked by the Great Recession (that's right, it has a name), we've had to reevaluate how business works. Things are different now. Venture capitalism is no longer en vogue. The age of the bootstrapper has risen.
The publication of books such as The Lean Startup, The $100 Startup and Rework serve to demonstrate how entrepreneurs' attitudes have shifted. The new mantra demands that you throw out the eighty-page business plans (they'll only weigh you down) and reject the search for big backers (you don't need their money).
More than ever before, today's entrepreneurs embrace a philosophy that rejects reliance on outside funding and instead focuses on individual initiative and the freedom to succeed.
In this post — the first in a series of three — we look at the concept of bootstrapping in the context of online business and learn why it is so effective.
What Is Bootstrapping?
The Journal of Business Venturing defines bootstrapping as:
Methods that are used to reduce firm reliance on outside financing. Since outside financing in the forms of debt and equity are difficult to obtain...and are more costly than internal sources of financing...bootstrapping is both necessary and desirable for many small firms.
Their phrasing is a bit dry, but you get at the idea. Bootstrapping “does not widely appear in...academic literature,” as the Journal points out, but it is being embraced by entrepreneurs across the globe as a means of building viable businesses that net real income. It is a new movement that has taken the economic world by storm.
Business school textbooks and advanced management theories generally ignore bootstrapping, or gloss over it in a mere paragraph or two. They continue to advocate the management methods of the twentieth century. For some businesses, that's fine. But for a whole host of others — startups born to thrive in the Internet age that are dynamic and ready to grow — a new path is needed. Enter bootstrapping.
Bootstrappers deliberately bypass bank loans and other traditional sources of funding, instead they focus on building a business from scratch with nothing more than their own money — mixed with blood, sweat, and tears. To bootstrap is to be free. You won't be hustling for venture capital or reporting to a distant board of investors.
In The $100 Startup, Chris Guillebeau cuts through the academic jargon to describe what bootstrapping means for today's world.
Perhaps most important, the vital career question of what is risky and what is safe has changed permanently. The old choice was to work at a job or take a big risk going out on your own. The new reality is that working at a job may be the far riskier choice. Instead, take the safe road and go out on your own.
What if you could achieve your own life of freedom by bypassing everything you thought was a prerequisite? Instead of borrowing money, you just start — right now — without a lot of money. Instead of hiring employees, you begin a project by yourself, based on your specific personal combination of passion and skill. Instead of going to business school (which doesn’t actually train people to operate a small business), you save the $60,000 in tuition and learn as you go.
Bootstrapping is a philosophy pointing out that you can build your own business without large-scale financial backing. This is especially true of online business. We live in an age when barriers of entry to business are historically low. Anyone with a little bit of cash can set up a PayPal account and a website. The Internet is still a relatively new frontier, and it allows you to take your skills and put them to profitable use.
Fundamentally, bootstrapping is the idea that you can start with one simple business idea, eschew outside funding, and succeed on your own.
Two researchers in the Journal of Entrepreneurship Education put it this way:
Bootstrapping is entrepreneurship in its purest form. It is the transformation of human capital into financial capital.
To me, that definition is the most compelling and the most exciting.
Powerful Examples of Bootstrapping
Although the term bootstrapping may imply small-scale endeavors, you should remember this: from acorns did mighty oaks grow.
Big things start small. A good business will expand and attract customers, so those tiny ideas launched on a shoestring budget often become something pretty huge.
Consider the story of Buffer, an online app that streamlines social media sharing. Buffer's founder, Joel Gascoigne, thought that existing Twitter applications had a flaw: their scheduling features required users to determine a time for each specific tweet.
He wanted to fix that. “The fundamental idea,” Joel writes on the Buffer blog, “was to create a way to queue up tweets without scheduling each tweet individually.”
He began with a lean, two-page website. The first page described Buffer in three quick, numbered points. The second asked those who were interested to input their email so that they would receive a reminder when Buffer launched.
This simple step was key. Joel knew people were interested, so he moved on to phase two: learning more about the commercial prospects of the idea. In between the first and second pages, he made a page with pricing info (it would track which option people clicked on before entering their email). Most visitors chose the free option, but a few were already willing to pay.
This experiment proved that the idea had a potential market; there was demand, and Joel was ready to create the supply.
Next, he set himself a hard deadline: release a rudimentary product by November 2010. When the date rolled around seven weeks later, he forced himself to show his first version of Buffer to the public. It wasn't everything he wanted. There were a few bugs. There wasn't a guided step-by-step sign up process and it was rough around the edges.
Joel was prepared for a tough road. In fact, he was embarrassed by how Buffer had turned out. He did not expect many (if any) customers. Luckily, he was wrong. Within four days of launching the product, he had his first paying user.
With something that worked on his hands, he told the world about it. Marketing was important to Joel, as was providing good service to the customers he already had. He wanted to keep the product lean, so it was a little while before he added more features. He knew he had to keep the right development balance.
Of course, as time marched on, he did add more features (and staff) in an effort to serve his customers. These days, having broken the 500,000 user mark back in February, Buffer is a pretty big deal. But it was bootstrapped from the beginning. Joel's success stemmed from personal financing and the practical application of lean development.
Bootstrapping Is for Everyone
The story of Buffer is awesome, but it's not unique. There are plenty of examples of online apps of this kind that have been bootstrapped to greatness.
One is ManageWP, which began with the simple idea of giving users a single dashboard to manage multiple WordPress websites. Now its customers use it to manage over 100,000 sites.
But what if you're not looking to create an app? Don't worry. In reality, bootstrapping can be applied to any online business. Starting small and doing it yourself is, in many ways, what the Internet is all about.
Most bloggers, even those that are now huge, bootstrapped their empire.
Darren Rowse is the owner of both ProBlogger and Digital Photography School (the biggest digital photography blog in the world). He practically created his blogs out of thin air (while also attending theology school part-time and working three jobs).
Surely, with such a difficult situation, he required massive investment to succeed and gain readers — right? Wrong. In terms of cost, he didn't shell out for anything other than a domain name and hosting.
I have bootstrapped my own business, too. Beginning as a solo freelance writer, I took on writing gigs and launched my own blog, none of which cost me a great deal of money. As my client base has grown I have expanded, and now earn upwards of $150 per hour. Embracing bootstrapping allowed me to create a successful freelance writing business with barely any upfront investment.
Why Does Bootstrapping Work?
At this point, I've explained what bootstrapping really means and given you several examples of people who have bootstrapped their way to substantial earnings.
But why should you care? There are companies that have succeeded with more traditional sources of capital and there are bootstrapped businesses that haven't lived up to expectations. The examples I have laid out are compelling real-world illustrations of bootstrapping success, but it's only fair to you that I dig a little bit deeper into the concept to prove to you that bootstrapping works.
Whether you are a single twenty-something who loves the thrill of the ups and downs of entrepreneurship or a parent trying to work to support your family, business is important. It weighs heavily on many aspects of life. But it's not easy. In The Lean Startup, Eric Ries points out that entrepreneurship is hard and often ends without success. He states:
I have seen firsthand how often a promising start leads to failure. The grim reality is that most startups fail. Most new products are not successful. Most new ventures do not live up to their potential.
That's a scary picture. It begs the question: with a litany of available approaches to business, why bootstrap? But in acknowledging these harsh economic realities, we have actually answered the question!
Business is an inherently risky proposition. Because most startups fail, it makes sense to invest little at the outset. If you build your online endeavor with profits that it generated itself, you know that you are creating something that is sustainable.
While different management methods all have their place, bootstrapping best accounts for the risky reality that online entrepreneurs face.
Once again, The Lean Startup has a pearl of wisdom:
[T]oo many startup business plans...prescribe the steps to take and the results to expect in excruciating detail, and as in planning to launch a rocket, they are set up in such a way that even tiny errors in assumptions can lead to catastrophic outcomes.
Developing lean and funding yourself are the two basic principles of bootstrapping and they can save you from the pitfalls that Eric mentions. Instead of trying to craft big, clumsy plans, you can start with one simple idea and grow it from the ground up.
Bootstrappers don't have to answer to third-party investors because they don't have any. That means that you have the freedom to take the actions that you believe will lead to success. You might be wrong, but you can do your best and take the leap. Bootstrappers succeed — and fail — on their own terms.
This is especially important to online businesses. The Internet changes every day and the modern economy has proved itself to be a volatile creature. With the barriers of entry lower than ever, you can easily launch an online business, but so can the competition. The web is a dynamic environment where the competition is tough and the customers are fickle. Bootstrapping best accounts for this reality, giving you the flexibility you need to adapt to changing conditions.
Bootstrapping ensures that your revenue comes from success. This is because Bootstrappers don't look for big backers and huge funding. You are starting small and can know that any growth means that you're doing something right.
In a nutshell, bootstrapping is a liberating approach that provides you with the freedom of action to turn your passion into a workable idea. This freedom allows you to do what's best for your bottom line, and at the same time it has value in itself, putting you in control of your destiny.
In the next post we're going to dive into the juicy stuff: how to bootstrap your business and put your ideas into action. Then we'll finish off with a roundup of expert advice on the topic of bootstrapping.
Once you have read all three posts, you'll be ready to take on the world with your bootstrap business — one iteration at a time.
What concerns do you have about bootstrapping? Have you tried it before, or are you just learning about the concept for the first time? Do you have any thoughts about the idea of a bootstrapping approach? Please let us know in the comments below!
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