The term “bootstrapping” was gotten from a phrase used in the 18th and 19th century which states, “to pull oneself up by one’s bootstraps.” Back then, it was referred to an impossible task, however, today it refers more to the challenge of making something out of nothing.
Bootstrapping describes a situation in which an entrepreneur starts a company with little capital, relying on money other than outside investments. It is a term used in business to refer to the process of using only existing resources, such as personal savings, personal computing equipment or house, to start and grow a company. This approach is in contrast to bringing on investors to provide capital or taking on debt to fund a business’ expansion.
A business that uses bootstrapping is usually characterized as a business, highly dependent on internal sources of financing, credit cards, mortgages, and loans. In other words, bootstrapping is characterized by limited sources of financing. For the successful growth of an enterprise, a competent development strategy is necessary, in which all possible risks will be accounted for. In addition, available funds need to be allocated to the most vital segments of the business model.
Benefit of Bootstrapping
With bootstrapping, the entrepreneur gets a wealth of experience while risking his own money only. It means that if the business fails, he will not be forced to pay off loans or other borrowed funds. If the project is successful, the business owner will be the sole benefactor of the proceeds that come with its success.
The “bootstrapper” reserves the right to all developments, as well as ideas that were used during the development of the business. Also, in terms of motivation, the lack of initial funding makes entrepreneurs look for unusual ways to solve problems, create new offers on the market, and show creative thinking, as they are forced to be innovative in a bid to reduce cost and maximize profitability.
Another major benefit will be the independence from investor opinions. An entrepreneur can make all the decisions independently, so he is able to create something unique, realize a dream, test strength, and be independent of the investors’ instructions. This is because the business will be focused on providing value to people that will easily turn to cash.
Why you should consider bootstrapping in Nigeria
Nigeria is an environment that is very harsh on business owners as the prices of goods and services are always increasing and thus, putting the inflation rate of the country in double digits. In fact, the latest report from the National Bureau of Statistics (NBS), puts the country’s inflation rate at 17.71% in May 2022, the highest level in 11 months.
Due to the lack of ease of doing business in Nigeria, many startups who have raised funds to build a business have failed, as the cost of doing business increases regularly and because of the fact that they are not market leaders, they are price takers and not price givers. This is because many startups are entering into a market that is highly competitive, with big market players with an already established presence.
Bootstrapping is a preferred approach because it forces the owners of the business to be more prudent and very attentive to business needs and requirements for growth. Bootstrapping, although is not necessarily the easiest approach, is, however, better as there is a lack of accountability. The only person you are accountable to is yourself.
In developing economies and due to the high inflationary environment, one can see many entrepreneurs are being forced to bootstrap as loan sharks, who are entities that give out loans at ridiculous rates, thrive. Due to the burden of taken on such obligations, potential entrepreneurs are forced to save and start their businesses without access to external finance.
Bootstrapping VS Funding
Although there are many opinions on this age-old debate, Samuel Carrington, a business owner in Nigeria, believes Bootstrapping is the best approach to start, however, he also believes that in the long run, you would still require funding to take the business to the next level.
He explained, “creating the financial foundations of business by an entrepreneur is a huge attraction for future investments. Investors, such as private individuals, special funds, or venture capital firms, are much more confident in financing businesses that are already secured and have demonstrated the promises and commitment of the owners.
“Attracting external funding is challenging and can be a very stressful and time-consuming task. Bootstrapping allows an entrepreneur to fully focus on the key aspects of the business, such as sales, product development and when it is successful, raising funds to grow become 10 times much easier.”