The Benefits of Bootstrapping Your Lean Startup
There’s a point where scalability isn’t achievable without an injection of capital from investors, but long before that point smart startups will be bootstrapping their way towards growth. In this blog we'll discuss the benefits of bootstrapping prior to funding. You can find an in-depth exploration of these principles in this fantastic blog, but for those who want the executive summary, stick around.
Bootstrapping fits lean methodologies like a glove. With businesses that employ a low burn, high utilisation strategy, bootstrapping is an excellent way to provide the minimal resources required to establish a foundation for business. The stages involved in lean startup can be broken down roughly into three parts:
Customer Discovery: During this stage, tech startups find solutions to a specific problem, developing a product using their limited resources until they reach an MVP. To get there they can use a mixture of self-funding using credit, savings and equity and any turnover the startup can generate in the course of business.
Customer Validation: At this stage the startup will be seeking to confirm a good market fit. As well as likely finding new opportunities they hadn’t imagined, this stage is also the first opportunity to tailor the product more closely to the customer. This stage also marks the first stage of sales, allowing startups to test and optimise their revenue generation models.
Post-product: From here on out, the company will be focused on using revenue and also investor funding to grow the business. Scaling to reach a larger audience often is attended by complex international transitions, growing teams and added pressure from stakeholders, but despite the potential for complications, this is the part most founders look forward to.
Bootstrapping works with this model by assisting startups in the early stages. But it also provides a number of cultural and financial benefits that make a compelling case for focusing on bootstrapping in the infancy of your business.
Bootstrapping imposes limitations that can work in the favour of lean startups. As well as forcing urgency in the lead up to MVP, working with limited resources also sculpts more efficient processes from skeleton, flat-structured teams. Minimal funding also keeps feet on the ground and makes founders think practically about revenue models early in the process.
Rather than pie-in-the-sky feature ideation, startups are compelled to work towards valuable solutions from the off. It makes the business more sustainable, and that’s something which will be understood and valued by investors further down the line.
Intensive validated learning
At its most effective, validated learning pushes startups in the right direction. While bootstrapping a business, the effects of success and failure are emphasised, meaning both learning and validation happen in a more intensive environment. Though it can prove risky if you’re teetering on the brink of the abyss, most startups thrive under pressure, making their product better, faster.
Validated products are the key to more accurate investor valuations. Venture Capital firms, funds and Angel investors are much more inclined to commit once there is a proof of concept, and the valuations increase with proven market size. Again, bootstrapping early on combines with lean processes to get better deals (and more favourable termsheets) for founders.
A foundation for funding
Bootstrapping lays a great foundation for the challenges of securing investment. As well as aiding more generous valuations and forcing startups in the right direction, it provides a safety net in the limbo that can precede Series A funding. Turnover, however meagre, is insurance against falling by the wayside while waiting for that crucial cash injection.
Funding doesn’t happen overnight, and a functioning business is the only way to ensure the long months in the lead-up to investment take place in a low risk environment. In the meantime, the constraints of doing business also lead to rapid product improvement, again with serious benefits for termsheets and valuations.
Slow and steady…
Not rushing to seek funding also helps to shape healthier structures of the business. Structures that evolve slowly over time are more likely to be tested and refined as the business grows, this is in stark contrast to rapid scaling backed by funding.
False growth can do more harm than good. Smart businesses build cultures and processes that are right for them. That internal culture can be blown out of the water when international expansion is on the table – sacrificing differentiation for speedier growth. Be prepared to be patient, and enjoy the opportunity to sculpt a unique way of doing things, one that’s primed for healthier scaling.
We fund businesses that show promise at an early stage. But those businesses need to demonstrate that promise through a mixture of commitment, business sense and a validated products. If you think your startup has all of those things, we’d love to hear from you. You can submit a pitch deck to us here, or contact us directly to see how we can help you to grow beyond borders.