Bootstrapping vs Investors: Which Path Is Right for You?

Deciding whether to fund your business with your own money or seek external investment is a crucial decision for entrepreneurs. Booth funding strategies are viable ways to build a successful business. However, it is important to understand what they imply so there is no regret in the future. In this post, we will explore the pros and cons of both options and help you determine the best path for your business growth.

What is bootstrapping?

Definition and key characteristics of bootstrapping

Bootstrapping is the process of starting a business without external investment. The idea comes from the common saying “pulling oneself up by one’s bootstraps”. When an entrepreneur decides to bootstrap their business, they use their personal savings to self-finance and reinvest the revenue generated back into the business to grow.

Should I Bootstrap My Business?

Is bootstrapping good or bad? Should you bootstrap your business or find investors? Bootstrapping is not necessarily good or bad per se. The decision of bootstrapping your business or finding investors to accelerate your business growth depends on your preferences and goals. Some of the pros and cons of bootstrapping are listed below.

Pros of Bootstrapping

Owning 100% of your business

When you bootstrap your business, you keep 100% of the company to yourself. Having investors can dilute your business ownership significantly. It reduces your potential returns as your business scales and becomes profitable.

Full Control

Bootstrapping allows you to have full control over your business. You can make any business decisions without the approval of others or interruptions that can potentially slow down your business, reduce productivity, and hinder efficiency. Additionally, there are times when disagreements may occur between you and your investors, and you will be forced to compromise, even if it sounds like an unwise move.

Easier to Pivot

When you realize that something is not working, you have to pivot even if it means changing the whole business fundamentally. It can be challenging for investors to reconcile the loss of their investment. They might stop investing in your business or force you to go down this doomed path.

Focus

When you are building your business, you need to put all your attention into making it work. Having investors increases your commitments and workloads. You have to attend regular meetings, report your progress to your investors, manage the relationships, and make them happy. Bootstrapping your business allows you to have one singular focus to make your business successful.

Freedom

One of the reasons why many choose to become an entrepreneur is the freedom and flexibility they have. Having investors is like having a tutor who checks on your progress regularly. There will be targets and deadlines that you have to meet. If you enjoy the flexibility to work at your own pace, then bootstrapping might be the better option for you.

Cons of Bootstrapping

Limited Resource

Investors provide the capital and the resources you need to run your business, test your business strategies, and grow your business. It’s challenging for a business to thrive if it is running on limited resources and capital and many businesses fail because of this.

Increase workload

Bootstrapping requires you to work incredibly hard. Many solopreneurs have to work day and night, on weekends and holidays at the early stage of their business. You will have to wear many hats and do everything yourself until your business becomes profitable to delegate tasks to others. It’s mentally demanding and you will have to prepare for countless sleepless nights.

Slow Growth

With limited capital, it takes time to effectively test your strategies and grow your business. One of the strengths of having enough funds is you can hire a team, and run multiple campaigns and that helps you scale your business rapidly. With a team, you can test a social media strategy several times a day, which is improbable when you have to take care of other aspects of your business.

Personal Financial Risk

Bootstrapping involves a greater personal financial risk. You might have to pour all the money, time, and effort into your business, and success is not guaranteed. You receive all the potential rewards but at the same time, you suffer all the risk associated with your business.

Successful Bootstrapped Business

Shopify

Shopify is an e-commerce platform that aims to make it easier for everyone to start, manage, and grow their business. It was founded in 2004 by Tobias Lütke, Daniel Weinand, and Scott Lake. At that time, the eccomerce platform was uncompleted and there was no solution at the time to give the founders what they were looking for. They found a gap and built their own platform and the market valuation is now over $80 billion USD. The business was

Apple

Apple is another successful company that was bootstrapped by Steve Jobs and Steve Wozniak. They started everything in a garage and they had to sell their personal belongings, a Volkswagen minibus, and a programmable HP calculator to accumulate $1,300, which is equivalent to $7,200 today so they had enough to start the business. The company has continued to grow even today and has reached a market valuation of over $3 trillion USD with annual revenue of over $300 billion USD in 2024.

Seeking Investors

If you have a business idea that requires you to purchase a machine that costs thousands of dollars, bootstrapping the business may be impractical. The only you can finance the business is through investors who share the same vision, and there are a couple of ways to do that.

Venture Capital

Venture capital is a form of financing startups or companies in their early stage receive from a firm or fund. The startups and companies that receive this type of funding often have high growth potential, which attracts venture capitalists who are eager for lucrative opportunities.

Angel Investors

Angel investors are wealthy individuals who provide seed funding to startups in exchange for equity in the business. They are interested in startups and companies with novel ideas to help them grow and succeed.

Pros of Having Investors

Assess to capital

The first and the most common reason why many search for investors is seeking more funding. Some businesses need a massive sum of money to get started, while others might have burned their money too quickly and need more capital to keep it going until it becomes profitable. With investors, you have the funds to grow your business and have peace of mind to sleep soundly at night.

Room For Error

Capital allows more flexibility in your early stage. With enough capital, you can experiment and make mistakes without suffering unreversible damage and consequences that can lead to failure. If you bootstrap your business, you have to make sure that every step you take is the right one.

Faster growth

Having capital allows you to scale your business aggressively. Money loves speed and it is important to grow your business as quickly as possible while having the right system in place. If your business needs years to develop and mature, it will be overtaken by your competitors effortlessly. Having investors to support your financially at the start of your business can have a massive impact of your chance of success.

Cons of Having Investors

Dilution

Investors ask for equity in return for their investment and it dilutes your ownership of the business. There are many disadvantages of equity dilution as mentioned, which include reduce in potential returns, loss of control, and freedom. When considering whether to bootstrap your business or look for external investments, take all of these into consideration.

Pressure to Perform

Investors expect a return on their investment and that can create a significant amount of pressure on you. Sometimes it can be challenging to handle the expectations of your investors while managing your business at the same time. If you seek investments, prepare for intense dedication and the ability to manage investor expectations.

Conflict of Interest

Conflict of interest and divergent perspectives are inevitable in business. Investors will have different targets, goals, and what they think is the best for the business. There will be times when you have to compromise your initial plans and respect your investors’ decisions, and that requires humility and faith.

Which one is the best for your business?

Both bootstrapping and having external investments have their pros and cons. The best option depends on the type of business you have, what is possible at the time, and the factors that we have discussed. If your business does require much capital, it will make sense to bootstrap the business and test its viability before looking for investors. On the other hand, if you can’t afford to bootstrap your business and require some guidance from successful entrepreneurs who know what they are doing, having investors will be the better choice.

Conclusion

Starting a business is not easy. The early stage is extremely challenging in many aspects and having enough funding to get through is the first hurdle you have to overcome. The decision to bootstrap or seek external investment is influenced by various factors, including your risk tolerance and growth aspirations. Regardless of the chosen path, understanding its potential impact on the business is essential.