Bootstrapping Before Investors: Why Many Businesses Choose Not to Raise Capital

by | First Steps, Funding, Strategy

I can’t tell you how many people come to me thinking they need investors in order to start a business. They’re ready to give away ownership (and potentially control of their business) before they’ve even begun!

It’s not surprising, really. For every story about a business that starts with two people in a garage with only their savings, there are eight or ten press releases about companies securing millions of dollars in their latest round of funding. We hear a lot more about big money than we do about bootstrappers.

Bootstrapping has its advantages.

There are, however, virtues in starting out with limited resources. If you choose to bootstrap, both you and your company will have advantages that you can’t get with a huge cash infusion — balancing out some of the disadvantages of not having the money you’d get from investors.

Ultimately, the appeal of outside funding comes from the desire to get the resources you need to grow your business.

But countless businesses are able to grow without investors by making smart decisions about how they spend their time, energy and money in the first place, which allows them to use their limited resources to succeed despite a lack of investor funding.

This is especially true for businesses that take on an advisor to help guide them through those decisions and formulate the strategies and tactics that will help them make the most of what they have. So before you decide to look to investors as a means to take your business to the next level, it’s a good idea to consider what an advisor can bring to the table.

Advisors give you strategies; investors give you money.

When investors get involved, they give you a substantial infusion of money that has all the obvious benefits that come with a cash cushion. And a good investor — especially one who’s been in the game for a long time — will also use their connections to open doors for you.

Money and connections are certainly great resources to have at your disposal. But they don’t necessarily help you in making the right decisions for your business over the long term.

An advisor, on the other hand, takes the time to become intimately familiar with all the details of your business, major and minor. They can help assess your strengths and weaknesses, your market opportunities and risks, and help you clarify what you need to do in order to succeed.

A good advisor will bring in new ideas, challenge your existing ones to help refine them, and help you through the internal tough stuff that might currently be holding you back. They’ll bring in strategies, ideas, resources and options that you wouldn’t have discovered on your own.

Your advisor also knows that your business is a combination of you — the person running it — and the company itself, and will give you candid advice on where you need to grow professionally (and how to do it).

And when you have someone like that in your corner working through the tough decisions with you, and sticking with thorny problems until you arrive at the best solutions for your business, it makes it easier to run your business and grow it, even without outside money.

Advisors work from your goals; investors work from theirs.

Another reason many people take the bootstrapping path is to retain control over their business and their vision. That flexibility is a major benefit that goes away once you take on investors.

As Tom Peters said, “[When money changes hands], investors just bought the right to sit at your table and meddle with your life.”

Listen, investors fund businesses to make money. Their goals trump the goals you might have for your business, and their desire to exit and cash out as soon it’s feasible often translates into pressure to grow and scale faster than you might want to — or might be best for your company in the long run.

For some people that’s an acceptable trade-off, especially if they’re starting their business with the express goal of selling it. But if you have a vision and a dream for your business that reaches beyond that, bootstrapping (and working with an advisor) is an option that allows you to continue calling the shots and deciding how your business evolves.

A business advisor doesn’t have any skin in the game, so they’re going to work from your goals, your ambitions and the things you care about. They’re going to focus on helping you make your dream viable, sustainable, and yes, profitable — but on your terms.

This is especially important if your business has a lifestyle or company culture aspect you want to maintain. If you care about keeping a flexible work schedule or a particular kind of work environment and ethos, an advisor will work with you to help you grow at your own pace, so that the things that are important to you can be preserved. An investor, on the other hand, isn’t terribly interested in those priorities.

You don’t “need” investors to build a profitable business.

More often than you’d think, you can launch your business and make the cash register ring — all without investors. When you do it on your own steam it may happen more gradually, but it will be on your own terms. The upside is that your skills and abilities will grow as a business owner, which will serve you for the life of your business and beyond.

There are other perks to bootstrapping as well. Your learning curve is more likely to keep pace with your company’s growth, which means you won’t find yourself in over your head.

This is especially true if you’re working with an advisor, who can either teach you any skills you need to develop along the way or direct you toward resources that can.

And let’s not ignore the benefits of flying under the radar. When you’re running the show by yourself, you can make mistakes, work out the kinks of your business and exploit advantages without the pressure and prying eyes of outsiders, investors, the media and competitors. (This is why some companies don’t ever go public.)

And when you’re bootstrapping, you have just the right amount of skin in the game. Everything matters, and so everything gets attention. It’s easier to maintain a laser-focus on perfecting your offerings, your operations and the customer experience.

Bootstrapping is an ideal way to set yourself up for getting investors later.

If, down the road, you do decide to look for outside investors, building a profitable business while bootstrapping puts you in a far stronger position to pitch your business and negotiate terms.

When you’ve built a growing business with a proven track record, you’ve got something better to offer than simply a shiny new idea. In other words, you’re not starting from a position of weakness begging, hat in hand, hoping they’ll say “yes.”

And that puts you in a position of strength. You’re coming in with something tangible and valuable — and that gives you a lot more negotiating power.

In the meantime, though, you can work on building that thriving business. And if you’d like to work with an advisor who can help you discover the strategies and tactics that will get you there, you can give me a call.

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