Bootstrapping vs. Venture Capital is Often a No Win Argument
When it comes to starting and growing a business, the decision to bootstrap it versus obtaining outside funding through venture capitalists isn’t an easy decision to come by. For most small businesses who can’t or don’t know how to obtain venture capital funding, the decision is made for them by default. Bootstrap it or die.
But, as I said in my last post, Bootstrapper isn’t a badge of honor.
The problem is that the decision is often approached as an either/or situation with no room for middle ground.
I am in agreement with Jason Fried and David Heinemeier Hansson, authors of the book Rework, in that often businesses that do not have upfront capital are often more creative. Funded businesses are often limited by the desires of their investors and they can and still do crash – and crash hard – once the money is spent.
BOOTSTRAPPING
Bootstrapping, in the sense of the financials, means not taking on debt or liabilities in order to grow your business. Beyond the financials, it takes on a very DIY (Do It Yourself) nature, since most small businesses are short on cash that allows them to outsource essential business needs such as marketing, accounting, administrative, strategy, and more.
“If only I had some wealthy person invest in my business.”
Someone is funding the business, often the business owner out of personal accounts, or with their own time and labor – also known as sweat equity. When the cash flow is short, they resort to doing the tasks that are not the focus of their business, but that their business still needs to function, like bookkeeping and filing taxes, or like marketing and order fulfillment. Hence, the DIY aspect, and often a DIAY (Do it ALL Yourself) approach.
VENTURE CAPITAL
Venture Capital can provide an incredible influx of dollars that can be, and often are, spent haphazardly. The pressure is on to provide a return for the investors, so everything is outsourced and quite quickly, sometimes leading to hasty if not bad decisions. The “cash” can be burned through and leave the business owner in a bigger bind than if he or she had never had the money in the first place.
In The Personal MBA, Josh Kaufman warns that Venture Capital should only be used “to accomplish things that would otherwise be impossible, (like building a factory).”
“Oh to be bootstrapping again.”
Back to the argument of Bootstrapping versus Venture Capital. It’s not that it’s a bad argument per se, except that it only offers two options at opposite ends of the spectrum.
There is room in the middle, between the DIAY attitude, and that pursuit of OPM (Other People’s Money). The challenge for most businesses is to dare to venture into that middle ground, especially when they believe that cash flow is the issue.
Being creative and tapping into resources can often provide a growth strategy that can get a business to a stage where a venture capitalist might take them seriously, and often they find that they never needed the capital at all.
The trouble is when business owners resort to business as usual for lack of knowledge or energy and desire to pursue the knowledge that can get their business to where they want to go, without mortgaging their dreams with debt.
A far cry from business as usual, Michele Jennae’s program Business Exceptional provides a framework for getting things done with creativity and resources that are available to everyone, but often not what they are taught, even at top business schools.
Do you want to know more about Business Exceptional? Join my mailing list below and be the first to know as the program is rolled out in coming weeks. Special offers for newsletter subscribers.
