If we all had rich relatives who were quick to give their money away, starting a business up would be relatively easy. For most of us, that’s not the case.
But if it takes money to make money, as the old saying goes, where do the funds for your business come from?
The two most common ways to fund a startup business are to A: bootstrap it or B: get investors.
To know what’s best for you, you need to understand the pros and cons of each.
Advantages of Bootstrapping
Bootstrapping is really just a fancy word for self-funding. Arguably the biggest advantage is that you retain full control of your business. No shares are sold. You owe nothing to anyone but yourself.
If the business doesn’t work out, sure, you’ll have lost your money, but you won’t lose someone else’s money with it, which is generally a good thing.
Many people who bootstrap also find themselves to be more focused. You don’t have excess capital, so you need to stay as lean as possible. Additionally, you don’t spend any time tracking down and dealing with investors, so you can stay 100% focused on your business.
The Downside of Bootstrapping
While bootstrapping can be easier to get going and comes with less risks, it has its limitations. Specifically, in the realm of cash-flow. If you’re the one funding your business, you’re limited by however much (or little) money you have.
If you take on more work to bring in more money to put towards your new business, that’s time taken away from doing actual work on the new business. Many find the balance of working on the old to fund the new to be a bit tricky.
By bringing on investors, you might be able to gain the funds needed to pursue your business 100%…
Advantages of Investors
Bringing on investors can bring in a much needed surge of finances that can be used to grow your business exponentially faster. Not only does it get you money, but investors can often bring additional connections, personal knowledge and other resources to the table.
Of course, investment money comes with its own price.
Disadvantages of Taking Investment Money
Investment money might appear to be free money at first, but make no mistake, that money comes with strings attached. What those strings are depends on the agreement you make with the investors. It could be shares or voting rights or a certain rate of return.
Regardless, once you take on an investor or two, the business and its success no longer belong to you entirely. And sooner or later, that investment money will run out. You now have a deadline by which you have to achieve success as defined by the investors.
It can be a lot of pressure added to your business, to say the least.
What About Both?
It’s not uncommon for a business to start by bootstrapping and eventually move to bringing on investors. In fact, it’s typically easier to find good investors if you have some semblance of a business started.
It’s also good for you because that generally means you’re bringing in some level of revenue, and the investment money is specifically to grow your business bigger, faster, rather than making it work in the first place.
What’s Best for My Business?
The best option for you depends on a number of factors, ranging from “how much money do you have for bootstrapping” to “what investor opportunities are theoretically available to you”.
Whatever route you go, you’ll need a plan. To learn more about the ART of business, check out my book or contact me directly. I’ve worked hands on with businesses in all different stages.