For new entrepreneurs one of the most challenging aspects is financing. There are so many ways to get capital for your business that it can get confusing, so in this article we will be focusing on bootstrapping and what is known as FFF.
So, what exactly is bootstrapping? Bootstrapping is a financing approach where a company starts and grows using its internal resources and revenue, without relying on external funding sources such as venture capital, angel investors, or loans.
So why would pick this option rather than another source of capital? Entrepreneurs who normally choose this option want to be self-sustaining and able to put revenue earned back into the business rather than a third party. Bootstrapping also teaches a variety of useful skills needed to be an entrepreneur, for example:
Resourcefulness – Bootstrapping encourages resourcefulness and creativity as entrepreneurs must find cost-effective solutions to problems.
Independence – Bootstrapping enables entrepreneurs to maintain independence and build a business on their terms.
Flexible Decision-Making – Without external investors to answer to, bootstrapped entrepreneurs have the freedom to make strategic decisions that align with their vision
Bootstrapping can be a risky approach, however, as you will start out with limited capital which can mean slower growth at the start of the business, as a successful entrepreneur from Moldova told Emerging Europe. “We did not have our own initial money to invest and grow really fast, thus we had to grow really slow year by year according to our profits.”
With lower capital comes resource constraints. These include but are not limited to difficulties in:
Hiring – With a smaller budget, you may struggle to hire enough staff to fill all needed roles.
Acquiring necessary equipment/technology – With a smaller budget you might not be able to afford the equipment you need for your business and may have to resort to buying second hand equipment.
Marketing – With a smaller budget marketing and advertising may be out of the question as these aspects can take up a fair amount of time and money with no guarantee of a return.
Bootstrapping is entirely up to the individual. If you want to have control over your business decisions and finances then we suggest using bootstrapping, whereas if you prefer more financial freedom then we suggest using a third-party source of income such as a loan. If you would like a combination of the positives from a loan and bootstrapping, we suggest FFF.
FFF which stands for friends, family and fools is a method of getting capital for your venture by getting a loan from your friends, family and people who would invest in a small business in the initial stages (AKA fools). But why use FFF rather than a traditional loan? FFF has a multitude of benefits in comparison to normal loans, for example:
Less stress – As most of the people investing in you will be close friends and family there will be less stress in paying them back and there will be no fixed deadlines.
Support and Belief – These investors typically believe in the entrepreneur’s vision and are emotionally invested in the business’s success.
Accessibility – Friends, family, and fools are often more accessible sources of funding compared to normal investors as it is easier to pitch ideas and secure initial capital from people you already know or have personal connections with.
However, mixing personal and financial matters can strain or damage relationships if a start-up encounters difficulties or fails. Entrepreneurs must handle investments from friends and family with care and transparency to avoid potential conflicts.
To conclude, bootstrapping and FFF are both viable ways to start of an entrepreneurship but is the control and freedom you have in business decision making worth the loss of financial freedom and risk of losing relationships? That is for the entrepreneur to decide.