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Why more businesses should focus on bootstrapping

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by Startacus Admin

bootstrapping
Laundryheap
is a leading on-demand, laundry service operating across the UK, Ireland, the Netherlands and UAE. Since launching, they've cleaned over 4.5 million items of clothing and seen a growth in active users by 450% per year, in a fiercely competitive on-demand space.

But CEO Deyan Dimitrov bootstrapped Laundryheap into profitability before taking any VC funding. Writing on Startacus, he suggests other businesses should focus on bootstrapping before turning to investment.

"When it comes to start-ups, it’s the size of the fundraise that gets the most attention. In recent years the dollar signs have been inching up, with tech companies pulling in multiple millions in their Seed rounds and adding even more zeros when it comes to a Series A. But this borderline obsession with the ability of a tech company to woo VCs into signing cheques is clouding our view about what it takes to build a successful start-up. Amongst this fundraising hype, the power and role of the humble bootstrap has been lost. And ignoring the opportunities that bootstrapping can bring is a major oversight for aspiring entrepreneurs.

The process of bootstrapping involves self-funding a business idea (either by investing personal funds or not taking a salary at first) and then keeping overheads as low as possible for as long as possible. You focus on creating a product or service that people want to pay for and allowing any revenue to be reinvested back into the business. Without the luxury of surplus cash, keeping the operating costs low and the business model lean are top priorities.

Despite not being given the same amount of airtime, many a successful business avoided external funding when getting their ideas off the ground. Take global shapewear brand Spanx for example. Founder and CEO Sara Blakely bootstrapped the business from $5,000 in personal savings by taking cost-cutting measures like writing her own patents and shipping deliveries from home. Using this approach to create a minimum viable product meant she started building profits almost from day one and has retained 100% ownership of the company since establishing in 1998. Likewise, GoPro Founder and CEO Nick Woodman also bootstrapped through the early years, working to achieve a profitable model before turning to external funding.

These examples tell a very important story: there is more than one route to success. Crucially, businesses which are bootstrapped have less to lose, retain more control, and tend to be laser focused on turning a profit (or at least breaking even) from a much earlier stage. With 90% of startups expected to fail, how useful is a funding boost of millions when your business model just isn’t sustainable?

bootstrapping a businessWhilst it may not be glamorous, bootstrapping can set the right conditions for operating a business which is sustainable, profitable and in which you retain a much larger stake in the long term. I bootstrapped Laundryheap, my on-demand laundry and dry-cleaning start-up, for three years before taking any external funding. This meant that by the time I sought additional funds, I had a viable revenue model, a clear sense of exactly how much funding was needed (and what it was for), and could protect my ability to move forward without undue external influence by minimising the stake I needed to offer up in exchange.

Bootstrapping means a significantly smaller circle of investors get a slice of the pie. With this, entrepreneurs can mitigate any stress caused by excessive external influence and place more focus on the business and it’s day-to-day operations. This can mean the company has the breathing space to grow and improve organically, and less importance is placed on swift returns. If you’re a founder that trusts their gut and has a strong vision for the future, this can be absolutely key.

And with fewer investors needed, those who do invest can be approached more selectively. With more agency over who you work with, you can surround yourself with the right combination of people; those who tell the truth, provide key insights or experience, and have the best interests of the business at heart. In short, if you need less cash, you can be much choosier about where it comes from.

This value in choice extends even further. As a CEO who bootstrapped, I was able to make an informed decision about when to take the plunge and raise VC capital. At Laundryheap, we waited for three years before raising £2m from a combination of angel and VC backed funds. This was in contrast to many of our competitors, who were doing the VC rounds on a 6-monthly basis. Running a company with a strong operational infrastructure and clear path to profitability allowed us to pick the time when external funds would be laundryheap
most beneficial for our growth - a stark contrast to startups that prioritise raising the money first and working out the business plan later. Long-term, we are already seeing this strategy pay dividends.

A sudden boost to your business bank account to the tune of millions can make even the most promising entrepreneurs lose their head. Over-hiring, mission creep, vanity projects: these can all stem from access to excessive funds.

That’s not to say all business ideas can be bootstrapped. Lots of tech ventures need greater than average funds to hire talent and build systems in order to get a project off the ground. But our start-up community rhetoric should not make founders feel that this is the only way. Bootstrapping can be the beginning of strong business models that focus on profit, viability and control. For many founders, this is exactly what they should be aiming for."






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Published on: 14th November 2019

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