Startup Bootstrapping: Definition, Process, Pros and Cons
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- čas přidán 30. 07. 2024
- In our first video of the Startup 101 series, we explain what bootstrapping a startup really means, what is a bootstrapped startup, how a bootstrapped startup is different from a funded startup, and what are the pros and cons of a bootstrapping a startup.
00:00 Introduction
00:33 What is bootstrapping
01:28 Pros of bootstrapping
03:00 Cons of bootstrapping
What is bootstrapping?
Any startup or a company that starts up and grows without any external funding is called a bootstrapped startup. Now, bootstrapping a startup doesn’t mean that a startup doesn’t raise any funds. In fact, a bootstrapped startup could either be self-funded by its founders and the founding team or it could be completely non-funded. However, these startups don’t raise funds from external sources like VCs.
Pros of bootstrapping a startup
Total Control: Since a bootstrapped company hasn’t raised any external funding, it means that the founders have total control of their startup and they have the right to take any decision in regards to the day to day operations and vision of their startup. However, a company that continues to raise external funding for its growth ends up diluting control and the founders could end up losing control of their own company to the investors. Take the example of India’s digital payments unicorn Paytm. Vijay Shekhar Sharma, the founder and CEO of Paytm, owns less than 15% of Paytm. However, Sridhar Vembu, who is the founder of Zoho, a bootstrapped company, owns around 88% of the company along with his family.
Business Sense: A founder of a bootstrapped startup usually stays focused on unit economics and thinks about revenues and profitability of the business. Considering it is a bootstrapped company, profits are what will enable the company to grow and in turn help it scale. In the end, a bootstrapped company would end up with a better and sustainable business. As for VC funded startups, these startups generally tend to focus on rapidly scaling their business and growing at 5X or 10X speeds without focusing on profitability or a business model that will help in creating a sustainable business. Take the example of Indian unicorns like Paytm and OYO. Both startups have massive revenues but also equally massive losses.
Cons of bootstrapping
Slow Growth: With the lack of funds, bootstrapped startups need to depend on revenues and profits generated to scale their business. Now unlike VC funded startups that have access to easy capital, bootstrapped startups cannot grow as rapidly as their counterparts and have to contend with slow growth in their early years until they build up enough cash and profits to unlock rapid growth.
Lack of Networking: Another important con of bootstrapping is that the founders can only depend on their limited network to grow their business and have to build new connections from the start. Unlike VC funded companies that have a network of VCs who not only have years of wisdom but can help hundreds of their portfolio companies to connect with each other and enable them to find synergies and unlock growth much quicker.
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I think the main challenge in a bootstrapped company remains the networking part. You have a good, cheap product that can easily beat the market leader's product.
With that, you can gain market share among the smaller customers but It is very difficult for an unknown company to get entry into a big customer company solely on the basis of the product.
With the network of the 'funded' startups, they are easily able to get entry within the bigger firms.
Do you think there's a better way for bootstrapped startups to gain traction similar to 'funded' startups?
Thanks for your comment Anubhav.
I feel one of the biggest thing that works and that bootstrapped startups depend on, is word of mouth publicity or offering a subscription at cheaper/no price at the beginning or having a referral program that offers incentives for sharing the product.
Because the bootstrapped startups have no fancy marketing budget and convincing gimmicks, they grow slower and at times that works good for them because they can work on the flaws in the product based on the reviews by initial customer base and that they can have a solid product before it reaches the masses.
What do you think is the perfect way to market for such companies?
- Prithvi
Good to see you on camera, was waiting for it the day you guys announced 101 series.
Thank you very much Nishant. We try our best to bring the best informative content for the subscribers.
Great explanation, to the point. Thanks.
That was great as I came to know about the basics. Thanks
I am glad it was helpful. Keep watching this space for more such stuff.
- Prithvi
loved it
Helpful video
Nice video, was waiting for this stuff on the channel....
Thank you Jay. Hope you enjoyed it. I will try to cover more basic terms related to startups in the coming days.
- Prithvi
@@backstagewithmillionaires Thanks Prithvi, Best Wishes
Hello Pritvi,
A crisp video. I liked the way you used the important terms. This makes me understand lot of thinking has gone beyond making this video. Looking forward to more videos in this series.
Thank you for the encouragement Dinesh. Yes, I've been working on this series for quite sometime and finally this is on the channel. Kindly continue supporting as we bring a lot more on this channel.
- Prithvi
Good
Thanks for this
I am glad you found this useful Abhishek. We have many more such videos in the pipeline. Keep watching this space for more.
- Prithvi
@@backstagewithmillionaires sure
Bro please make a playlist which helps in extablishing a startup
Hello Sai,
Thank you for the suggestion. In fact, the new series Startup 101 is a step towards what you suggested. We have a lot of such ideas in pipeline which will help budding entrepreneurs and we're working on them. You can expect some work on that in the coming months.
Thank you for your comment and keep watching this space.
- Prithvi
And can you please also make a video on top 10 or 20 newly started startups i.e. founded in 2019 or 2020?
I guess it is very difficult to point that out so early because there are 100s of startups.
Nice explanation
Thank you Jan. Glad you liked it. Keep watching this space for more such videos :)
- Prithvi
You should get a bwm merchandise T-shirt for videos, hardly costs 500rs but looks very professional.Just a suggestion!
Thank you for the suggestion Aman. Somehow this never struck us until today. I will get this implemented ASAP and you will see me and Caleb in BwM Tshirts pretty soon.
- Prithvi
Backstage With Millionaires 👍😊
Thanks!
Thank you so much for the financial support Adithya! -Caleb
Sir, can you please make a part 2 video on top 10 angel investors in India?
*25
?
Hi Malhar, I have responded to your email on this topic 🙂. -Caleb
Well said .
I’m planning to start customer feedback software does it works? Share me your view
I'll be in a better position to answer that if you can provide me some more information about it Jan. Like what feedback, what revenue model and your target customers?
- Prithvi
Backstage With Millionaires - it’s basically customer satisfaction about particular product or service then analyse statistics then turn those into action to improve company profit and efficiency etc.,. For example , if we buy Maruti Suzuki car .. to know customer satisfaction then use those inputs to retain those customers and acquire new customers also.
There are certain platforms doing similar things on a basic level. If you can implement this idea with the help of AI and can automate the process to take care of important data points and generate a helpful report for the companies, I am pretty sure this has a lot of scope.
Good luck with the same and feel free to reach out in case you think I can be of any help.
- Prithvi
Thanks for reply. There are some products like Survey Monkey,Qualtrics,Zoho survey and etc., I would like to give better value than them. Btw-how to reach you?
You can reach us directly at backstagewithmillionaires@gmail.com
Are there examples of Good Bootstrap companies which made big and which failed big?
Talking about the Indian scenario, there are companies like Zoho and Zerodha which are both unicorns and never raised funds. We have made a video on biggest Indian bootstrapped companies, which you can see here : czcams.com/video/AdY_pttRywQ/video.html
There is nothing like failing big in bootstrapped companies. They usually fail at the beginning or in the first few years and because they have raised no funding, the shutting down goes unnoticed.
- Prithvi
Oh okay
Thankyou so much for the reply
AWESOME video - thank you for sharing!.
I have started making videos for startup founders as well and would appreciate support
How many bootstrapped unicorns are there in India
Hey Amogh, the only two bootstrapped indian unicorns we are aware of at the moment are Zoho and Zerodha. There might be others as well but since most bootstrapped companies don't really play the valuation game and stay out of the media limelight, it might be hard to tell.
-Varun
Please don't look down. It distracts the viewers.
You're right Kunal. Yes, I was facing a camera after so many years and frankly, it was a bit nervous movement. However, I am sure you will not find the same in future videos of Startup 101 series. Thank you for your suggestion and support and I hope these videos can add some value for you.
- Prithvi
@@backstagewithmillionaires Hey, You were amazing in the video. I just gave a suggestion. You're doing brilliant. Keep it up mate ! :)