September 18, 2023
Bootstrapping a Business to Scaling a Business

Entrepreneurs must make crucial choices at every level of the development of their venture as they set out on the exhilarating journey of starting a business from scratch. The road to success is paved with obstacles and possibilities, from early-stage bootstrapping to scaling with additional funding.

The Bootstrapping Phase: Laying the Foundation

Bootstrapping a business includes creating and maintaining one only with operating income or personal funds. Although this funding method gives business owners more control, it may also burden their finances. Success during this stage depends solely on careful financial management and innovation. The critical ingredients for success in this stage include Resilience and Resourcefulness, Product-Market Fit, and Lean Operations. The Founders must be prepared to work numerous roles and step in whenever and wherever necessary. They must understand the target audience and refine their products or services to meet their client’s demands. To build a sustainable business, they must focus on keeping the costs in check and prioritizing essential expenses. Some common pitfalls to avoid are premature scaling and excessive spending.

Scaling with External Investors: The Crossroads

After the initial stage of building the organization and securing long-lasting customers, the next stage in the growth cycle is to ensure you look at the key levers that drive growth and ask yourself the question of – “build vs buy”. There is a suite of choices related to building capabilities within the organization that will drive growth. These capabilities can be built organically and will take time and impact the ability to take these new solutions to market. On the contrary, a buy option would allow the firm to acquire new capabilities and expand into adjacencies quickly. Buying new capabilities requires “dry powder”, which is capital.

Securing capital has multiple available options. For this article, we will focus primarily on the equity side. The key aspect of raising capital is to think about “control” how much control should be given to investors and at what valuation. If too much control is given at this growth stage, then decision-making is no longer with the core management team and the founders who built the business and the underpinning value. Decisions are faster if very little control is given and the founders keep majority control. This conundrum is there at every stage of growing the business. When these choices are presented, the implications of each choice have consequences of their own and careful consideration should be given to giving up control vs cashing in the equity at a premium valuation.

Ultimately, the entrepreneurial journey emphasizes how crucial it is to invest in your own company. Belief in the idea and the determination to generate more capital for use can act as a powerful growth catalyst. A mindset that enables entrepreneurs to make wise choices, optimize operations, and realize their company’s full potential is the mindset an aspiring successful entrepreneur must have.