When my co-founder and I decided to start our company, East Meets Dress–an e-commerce fashion company that sells modern Chinese wedding dresses (known as cheongsams or qipaos)–we made the decision to bootstrap it for a variety of reasons, namely, we wanted more control, flexibility, and ownership of what we were building.
There’s a growing trend of entrepreneurs bootstrapping their company and success stories like Basecamp, Kettle & Fire and Mailchimp, to name a few, have proven that it can work.
While there are many benefits to bootstrapping and it’s something I would highly recommend entrepreneurs to consider, it also depends on your industry, product, and circumstances.
Before you decide to bootstrap your company, here are 5 questions my co-founder and I sat down and answered and you should too.
1. What is your level of risk tolerance?
This can change depending on your current stage in life and circumstances, but starting a company, let alone bootstrapping, comes with a lot of inherent risk (90% of all startups fail). So ask yourself, are you ok with the possibility that your company fails within a year and you end up losing everything you invested while also not having taken a salary? The answer to this might not be a simple yes/no, but there’s likely a threshold amount that you would be willing to put into the company without getting a return.
2. What is the amount of capital required to start your business?
Some industries are better and easier to bootstrap than others. For example, e-commerce– where you sell things or services online–is much easier to bootstrap than starting a biotech company. You should ask yourself if this business is relatively easy to set up (i.e. you can do it within a month or two) and if you can test your business idea first on a small budget. Businesses that require a lot of inventory, space, and/or equipment should also be factored into your calculation of whether to bootstrap or not.
Fortunately, for our company, all of our wedding dresses are made-to-order based on custom measurements so we didn’t need to order and keep a large inventory to begin with. With an initial investment of $100, we were able to test out our business idea with an initial cheongsam dress design and get a decent list of interested leads.
3. How much runway can you give yourself before you run out of savings?
When you bootstrap, you’re likely not going to be getting a regular salary for at least a year. Even if your company is profitable quickly, you’ll be reinvesting that profit into the company. You should calculate how many months of savings you can live off of to pursue your company full-time or consider finding part-time gigs and additional sources of income elsewhere. You should also give yourself an internal timeline for how long you’re willing to pursue this (assuming things don’t go as well as planned) before you call it quits.
4. How quickly can you build a Minimum Lovable Product (MLP) and get your first paying customer?
Speed is essential when bootstrapping a company and your concern is not about shipping the perfect product but building a MLP (Minimum Lovable Product) quickly so you can get your first paying customer. If you can build that MLP in less than a few months and are able to get paying customers, then it’s probably an idea worth bootstrapping. For East Meets Dress, we put up a free landing page, built a $30 Shopify site over a weekend, ran a $50 Facebook ad and were able to get our first paying customer.
Depending on your product and what you’re building, it might take longer to build your MLP and get your first customer, but the key is that you should be able to do this relatively quickly if you’re going the bootstrapping route.
5. How do you plan on making money now?
The difference with bootstrapping is that you have a sense of urgency to generate revenue and reach profitability now rather than in 10 years. You don’t have the safety net of investors and the luxury of spending other people’s money. So make sure your product and revenue model make sense and allow you to build and sell something quickly. Products/services with business models that have very long sales cycles aren’t necessarily the best to bootstrap.
The Benefits of Bootstrapping
Bootstrapping East Meets Dress definitely made my co-founder and I better entrepreneurs. It forced us to be more disciplined about achieving product-market fit quickly by building and innovating on a product that our customers truly love and are willing to pay for. It also forced us to really listen to and take our customer feedback seriously. Another benefit is that we have full autonomy over the direction and strategy of our company and we’re in control of how we want to spend our time and what to prioritize daily.
At the end of the day, deciding whether to bootstrap your company is a personal decision based on your own circumstances. There have been many success stories of bootstrapped companies as well as many failed ones. It’s definitely not a one-size-fits-all model and in some cases, you might even start off bootstrapping, but raise venture capital much later on when your company is at a more rapid growth phase. If you are considering bootstrapping and have thought through these questions carefully and understand the risks and rewards, then I’d highly recommend this route if it fits your circumstances. Building your own company and starting a business is certainly one of the most rewarding and meaningful things that you can do in your lifetime.
