I am finishing up my last chapter in my new Bootstrapping text today. I am writing about how entrepreneurs build and then sustain a bootstrapping culture as their businesses grow. It is easy to see why most entrepreneurs bootstrap when they start — they simply don’t have much start-up capital. The average start-up in the US has only ,000 to get their business off the ground.
But why do they keep bootstrapping even when the cash starts flowing and they are no longer doing it out of necessity?
First, bootstrapping over the long-term can help a business avoid the need to secure external financing and keep 100% of the ownership in the entrepreneur’s own hands. By being more efficient throughout the life of the business, cash flow is optimized and the entrepreneur can build cash reserves that can be used to fund future growth.
Second, bootstrapping increases the income that the business can generate for its owners over the long-term. It also helps them to build more wealth from the venture. Cash flow is what allows the entrepreneur to take income out of the business, and successful use of bootstrapping helps to generate more net cash flow. This is just as true in a mature business as it is in a start-up. The value of a business is based primarily on its ability to generate cash flow into the future. The stronger the cash flow the higher the value of a private business. Bootstrapping, therefore, helps build wealth for the entrepreneur by increasing the value of the venture by increasing its new cash flow over time.
Third, there is an ethical reason to continue bootstrapping over time. They bootstrap to be good stewards of the resources that have been put into the business.
So what does a bootstrap culture in a business look like? The values and beliefs common to a bootstrap culture include:
– Frugality — it is desirable to achieve the same ends with the fewest resources possible.
– “Cash is King” — the cash in a business is its most precious resource.
– Stewardship — a sense of obligation to make the best possible use of the resources made available to the business from its stakeholders.
My next few posts will address what actions can be taken by entrepreneurs to sustain a bootstrap culture.