Reconsidering Bootstrapping over Venture Capital
Lalit Basnet - Jul 19, 2017
Do you consider yourself as an entrepreneur? Do you believe that you have a “revolutionary” idea that can capture the imagination of your audiences? Well, if the answer is a definite “YES” then, you might have already realized that access to finance is one of the important things that startups seek. It is often naively presumed that a start-up is not a start-up unless it has been backed by a financier, either it be a VC or an angel investor. This is even more dominant in country like ours where income disparity between the giver and the seeker is on a rise. This has led to a lot of startups and their opportunities gone to waste or have not reached their potential. This is mainly due to startups giving up on bootstrapping.
Bootstrapping is a process whereby an entrepreneur starts a self-sustaining business, markets it, and grows the business by using limited resources efficiently without the support of a financier.
Mark Zuckerberg and Eduardo Saverin’s struggle in the dormitory of Harvard University, Paul Allen and Bill Gates running Microsoft in backdoor garage can be taken as an inspiration for those who fail to attract investors into their business. Dell Computers, Facebook, Apple, Coca Cola, Microsoft Corp, Oracle Corp, eBay, Cisco and SAP are some of the famous enterprise to have commenced their business from bootstrapping.
NEHUB has listed out some of the advantage of Bootstrapping over venture capital:
- Freedom to create, work and innovate on your own idea
Freedom or at least the sense of freedom whilst working on your own idea is the single most motivating factor for an entrepreneur. You are accountable to only yourself, hence you have the freedom to make changes to your idea that you had previously envisioned. Innovation on your product/service can be perfected without having to report to your shareholders and altering it as per their needs.
- Efficient usage of limited resources that are available
In bootstrapping, you are entitled to very minimal resources, you are mandatorily required to make adjustment and adapt to changes in the process of building an “empire”. You would understand the importance and would try to bring the most out of the limited resources that you have in the beginning. These resources include finance, human resources and physical space etc.
- Focusing more on the needs and want of the customers;
Unlike in venture capital where by you are in compulsion to abide by the terms and conditions of your investor, bootstrapping gives you a platform to solely focus on the needs and wants of your customer. You will have an added advantage of addressing the needs and wants of the customers instead of fulfilling the demand of your investors. You will have a clear path to develop your product and make it more user friendly and at the same time more competitive in the market.
- You get to have a bigger piece of the pie when returns start to flow in;
This might also be a major reason to opt for bootstrapping over venture capital. After all, at the end of the day it ultimately boils down to how large a piece is the pie on your plate. Having done all the hard work, you want your fair share of the pie. But, in venture capital you do not get served the same portion of the pie as in Bootstrapping. You must share your returns with the investors, hence you would not be getting what you deserve and the incentive to put in hard work fades away.
Hence, it is essential that aspiring entrepreneurs from developing nation follow the path of bootstrapping.