Basis Zero of Entrepreneurial Finance: Bootstrapping

Often, one of the entrepreneur’s first reflexes is finding out about financing, even though experience often leads to knowing how to do without financing. Starting out without any external resources (bank loans or fundraising from capital investors) nevertheless remains an interesting entrepreneurial financial strategy called bootstrapping. Gradually, the scientific community is taking over this original and original way of funding to better define the start-up, appreciate its merits and limitations.

4 Categories of Bootstrapping

Bootstrapping methods and techniques, close to “good managerial sense” for some or economic creativity for others, can be classified into 4 main categories.

  • use of contractor resources use of salary from another activity, withdrawal on personal resources, use of home, recourse to unpaid or low-paid relatives or friends, relinquishment of salary in start-up, resort to barter (goods and services), exchange of shares Providing capital, getting loans from family or friends, etc.
  • Optimizing sales resources : prioritizing early paying customers, distinguishing from “bad” payers, developing economic models in favor of payment advances, giving discounts for cash payments, assignment of receivables, etc.
  • use of shared resources (mainly with other companies): premises, employees, materials and equipment, production, logistics and distribution, group procurement, etc.
  • “Strict” Management of Costs and Investments : longer payment terms, preference for rental and lease rather than acquisition, preference for second hand rather than new, use of fixed-term jobs, etc.

properties of bootstrapping

There are many examples of brilliant “bootstrappers” who built companies with success around the world (from Coca-Cola to Apple through to Dell, etc.). These successes are often tied to the very qualities of bootstrapping, qualities that make it possible to attract and consolidate outside investors:

  • Rapid market access and adaptation Bootstrapping often induces very rapid access to the market (reduction in R&D cost and time, time associated with the discovery of non-existent capital, limited manufacturer’s resources, obtaining a “first check” as soon as possible) If the entrepreneur has to report to investors and justify changes to his business plan, then adaptation to the markets remains rapid.
  • customer attention : Turnover very quickly becomes the main resource (“It’s better to make money than to borrow”) and the bootstrapper will do everything to satisfy his customers and demand new ones. This results in a much more positive and faster learning curve.
  • Comprehensiveness of Cash and Leverage Bootstrapping too early leads the entrepreneur to focus on liquidity levels and promotes the development of strategies that increase the profitability of the assets invested (franchises, joint ventures, partnerships, etc.).
  • Efficiency as Effective as: The bootstrapper will optimize the management of its costs and limit the effects of “burn rate”, favoring “I want” rather than “I want”.

a mechanism also marked by constraint and fragility

However, research conducted today does not make it possible to judge the superiority of bootstrapping over other funding methods. Strong growth and stability often appears to be associated with bootstrapping, but some results highlight the fragility and weak financial performance of companies financed through it.

For a young entrepreneur, bootstrapping is sometimes more of a financial constraint associated with the impossibility of raising funds than an actual strategic option. Bootstrapping is then assimilated into the financial modalities necessary for the survival of the company and the entrepreneur bears the loss.

Bootstrapping reflects the essence of finance and the entrepreneurial spirit. It is no longer reserved only for start-ups, but is also being developed to develop entrepreneurial projects within large companies and develop them with entrepreneurial dynamics. He is also at the origin of many innovations in financing of SMEs.

Amazingly, his apprenticeship is not systematic and the main part is given to the business plan and the pitch to the investors. So remember that knowing how to “bootstrap” is just as important as knowing how to “pitch”.

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