Belmont University

A Bootstrap Culture

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 $10,000 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.


Posted by Jeff Cornwall on June 13, 2008 06:59 AM |

Comments

Jeff,

This was a really educational posting. In reading it I can see that just about every one of the succesful consultancies I have worked for in my career had this bootstrapping culture at their core.

Great work - thanks!

I have to ask though... in your experience is there any downside to "doing it on the cheap"?

I often find, in consulting firms at least, that the bootstrapping culture tends to make people afraid to hire ahead of the curve. Even when there are real strong possibilities up the pipeline.

Anything in that?

Birdied by: Daryl Mather | June 15, 2008 05:12 AM

Anything can be taken to extremes. Bootstrappers can become overly cheap. But the definition of bootstrapping is NOT spending as little as possible. Rather, it is achieving the desired outcomes of a business within the limited resources available. You still need to get the job done, be it marketing or any of the functions needed for a business to operate effectively.

Think of bootstrapping as being cheap with a purpose.

Birdied by: Jeff | June 16, 2008 06:27 AM

Dr. C,

Thanks for the posts on Bootstrapping. At Cafe Evoke Catering, we are in the process of rebuilding and it comes at a great time.

I look forward to a the opportunity to read the new book when it is complete.

..be bold

Birdied by: Jason Duncan | June 16, 2008 08:18 AM

Great article. A team member referred me to this site as we're involved in a start up (azillia.com; but the current site is just for us to collaborate while we develop the site to launch). He's also the one who is a pro at correcting all my grammar errors, so I'll apologize ahead of time if you catch any. Cash is definitely king and as a founder I do feel the responsibility of conserving as much as "feasible" as to not let the team down. There are people who will bootstrap to such an extreme extent just to let everyone know they are bootstrapping. Conserve money because you want to succeed, and spend money where you need to. Don't let trying to get around paying for something become a full time job. Your hourly time is worth a lot of money if you are a founder (or any position in a start up company), and picking the right things to "spend money on" is crucial. Like outsourcing PR work, and call center work, etc. You do have to be a Jack of all trades in a start up, but not a professional, and knowing when to hire one is important. Great post, and I cant wait to hear more from more experienced people, as I'm presently involved with my first web based start up. BTW, we're looking for a frontend and backend programmer familiar with Python and web apps if you know anyone (I apologize for the plug, but that is a great example of "bootstrapping" and taking advantage of some free visibility:-)
jcrosby@azillia.com

Birdied by: Johnny Crosby | June 16, 2008 08:32 PM

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