What Are the Benefits of Bootstrapping?

Why would entrepreneurs choose to bootstrap their startup instead of seeking support from investors? ?Self-funding is a necessity, not a choice, for most founders.? Even so, approaching bootstrapping from a strategic perspective can add value to key decisions about business growth.

According to the Kauffman Foundation, fewer than 5% of all US startups ever receive venture investment.? Up to 75% of all new businesses are bootstrapped using the founders personal and family resources, personal credit cards, and earnings from an additional job.? Another 16.5% take out business loans, and the remainder leverage resources from crowdfunding, grants, and competitions.?? Given these numbers, every entrepreneur should think about optimizing their bootstrapping strategy.

I talked with founders at very different stages of company growth (the early-stage Solodko Bakery; the high-growth stage Stacker Media, and the mature stage ReVision Energy ) about why and how they decided to bootstrap their startup, and what they learned from the experience.?

SOLODKO BAKERY

Ilona Z. learned to love traditional pastries while visiting to her grandparents in Ukraine. ?Back home, the Boston College sophomore started baking her own pastries.? Ilona shared them with her friends, who urged her to start selling them. With Instagram to help spread the word, orders started coming in. That was her first step to eventually opening her bakery.

For a year after graduation, Ilona worked full time in financial services while Solodko was taking shape. ?She and her sister Irina pooled their resources to rent commercial kitchen space.? Their nights and weekends were spent baking and working on building a business. Like so many first-time founders, they used their salaries and credit cards for bootstrapping. ?After juggling a day job and entrepreneurship for almost a year, Ilona took the leap.? She and Irina formally launched Solodko as a retail bakery in 2022.?

Bootstrapping this business was a necessity ??As Ilona puts it,

“We were so new to the industry and had never run our own business before.? I didn’t expect to find an investor for opening a bakery in Boston.? My parents are immigrants, so it's not like I come from a background of wealth. Even the fact that I could graduate from Boston College was kind of a miracle for me, because it was way out of my comfort zone in terms of what my parents could afford. ?But we did have a community of support, and that gave us confidence.

Two years later, Ilona continues to grow the business, working to expand and diversify revenue sources.?Solodko obtained a business loan, and now has a team of seven.? It offers culinary classes and custom cakes for special events.? The bakery is poised to become profitable and Solodko is expanding into business catering services.? Ilona is happy she took the risk on starting her business, and realistically gearing up for the next stage.

It's definitely been a wild ride. I can relate to the saying that entrepreneurship is like jumping out of a plane and building a parachute on the way down!? There have been a lot of ups and downs for me as a first- time founder. Honestly if I had known everything in advance, I may not have had the courage to proceed.? It is getting easier with time, but it's definitely still a journey.

Insights from bootstrapping at Solodko

????????????? Start small and grow your brand with friends and family support

????????????? Embrace risk and learn by doing; be ready for the ups and downs of a long-term journey

????????????? Focus on growth and expand your customer base

STACKER MEDIA

Sam Gross co-founded Stacker Media in 2017 with 3 colleagues who shared a vision of providing local publishers with engaging, data-driven stories. The cofounders had previously worked together at Graphic, a venture-backed company that transformed data into visualizations for publishers. When Amazon acquired Graphic, Sam and his colleagues were ready to leverage their experience and publisher relationships into a new model for aggregating and syndicating content.?

With this backstory, raising venture funding would seem like a natural next step. So why did the cofounders decide to bootstrap Stacker Media instead? As Sam tells it, bootstrapping was a choice that enabled flexibility and ensured that Stacker founders could make their own decisions about their company's strategy and pace of growth.

Why did we decide to bootstrap?? If you don't need to take outside money, then you're going to have a lot more flexibility as a company.?That was the biggest thing for us. We would control our own destiny and grow responsibly.?Our founding team came from a VC-funded company, and we also talked to a lot of people who raised venture capital. There are benefits, of course, but the trade-off is that your investors will be after outsized returns.?That creates an inherent pressure to grow as fast as possible.? Once investor funds are in the bank, the founders can't say, hey, we are actually aiming at a 5x, or 10x return, or we think that slower growth will be a better strategy.? Instead, founders need to aim for 100x, returns, sometimes even 1000x returns, for that investor. It adds incredible pressure on the company’s performance and the founders’ ability to manage the organization. ?

That decision definitely involved some trade-offs and careful planning during Stacker’s first few years.? Sam remembers that,

We had to account for every dollar when we were starting out, when it was just four of us.? We were all writing stories and editing and doing partnerships, kind of doing everything ourselves, because we knew we couldn't go out and hire a team right out of the gate. Even as revenues grew, every hire we made, we had to justify it with increased productivity. In the early stages, we created some content in-house and amplified that through high-quality partners with content that we could syndicate.? From the start, we had a partnership with Microsoft to work with msn.com, and we added other news aggregators in our first year to create the foundation for scaling up. ?Once we had that baseline, we hit profitability a couple of months in. That was a big relief in terms of self-financing the business. And it allowed us to think more ambitiously about building on our assets, and expand the vision for where we want to take the company.

But the biggest thing was we were going to be in control by bootstrapping, and we knew with the business model we were pursuing, that was a viable option. Early on, we could invest in the business in a very deliberate way. And once we got through that deliberate growth phase, we were able to really, really scale up based on our profitability. Stacker has 50 full time people now. We have developed a very valuable asset that allows us to diversify our business model and work with even more brands.

Insights from bootstrapping at Stacker Media

????????????? Team up with like-minded cofounders and pick a bootstrap-friendly business model

????????????? Leverage collective team experience, active networking, and relationship-based partnerships

????????????? Start out lean, be deliberate about early-stage growth, then scale based on profitability

REVISION ENERGY

Bill Behrens was already a globally respected sustainability and solar power expert when he founded EnergyWorks (later re-named ReVision Energy) in 2003.? In 1972 Bill had coauthored The Limits to Growth, still one of the top-selling environmental books ever published. But the crisis kept on coming.? Every year, he could hear the clock ticking louder and see time running out for addressing climate change. ?Entrepreneurship was his way of turning mission into action,

By the time the 2000s came along, I had the same mission, which was how do you save the planet and make an impact as fast as possible.? You can’t solve the climate crisis by talking about it…you can only solve it by actively implementing the solutions that are available right now. That active implementation became the core of entrepreneurial and company mission, and my co-founding of ReVision Energy on the foundation of Energy Works.

Behrens enthusiastically welcomed younger cofounders who shared his mission, including Phil Coupe , Fortunat Mueller in 2006, and Dan Clapp who joined in 2010.? The cofounders agreed that ReVision Energy would operate as a mission-driven, values-led organization, with the ambitious goal of transitioning Maine, and then the rest of New England, from fossil fuel to renewable energy.? To accelerate the company’s solar installation timeline, the cofounders approached environmentally focused investors for funding.? But it turned out that even impact investors wouldn’t risk their dollars on small solar company in Maine.

Instead of changing course, the cofounders took a collective leap of faith by self-funding the company. Each cofounder invested $30,000 and pledged to work for 500 hours on the business without compensation.? As Phil Coupe remembers,

We had the leanest possible operation and kept overhead to a minimum, so that ReVision could become sustainably profitable as quickly as possible. Our goal was to self-fund growth without taking out a lot of bank loans or needing to sell equity to venture capitalists and somehow we were able to pull it off. Once ReVision became profitable, investors did come back with offers.? But by then we were growing fast, and we decided to invest the value of our company in our own workers and community members and in expanding our impact throughout New England.?

The bootstrapping strategy allowed the cofounders to expand their role in the community and in sharing value with their employees.? In 2015, ReVision became a certified B-Corp, and in 2017 it converted to 100% employee ownership through an Employee Stock Ownership Plan (ESOP).? With strong revenue growth and and an expanding employee-owner team, ReVision has achieved its mission of become a leading solar energy installer in Maine and other New England states.

Insights from bootstrapping at ReVision Energy

·??????? Shared vision, resources, and sweat equity from the founding team are critical success factors

·??????? Employee participation in value generation and profits fuels long-term growth

·??????? Profitable companies often receive investor offers after achieving profitability ?

(The Revision Energy story is excerpted from my book Starting Up Smarter: Why Founders Over 50 Build Better Companies.)

What’s your opinion about bootstrapping? Share your own experience with self-funding vs. venture funding in the comments!?