Bootstrapping 101 – How To Start Your Online Venture With Very Little Capital

i really don't appreciate these black-and-white treatises on debt. it's a hardline, synthetic opinion that is designed to generate pageviews. it's bullshit.

debt is one of the most important and misunderstood tools a young profitable bootstrapped company has at its command. a proper understanding of the different forms of debt, how to raise it, how to service it, what to use it for, and what kind of revenues/growth to support with it is absolutely critical for a company to succeed.

the bottom line is spending huge amounts of your own cash is incredibly reckless and dangerous, and is not the kind of thing a small, successful, profitable, growing company that has employees, suppliers, and customers (all to ANSWER TO) should be doing. to a certain extend, building a company is about injecting yourself as seamlessly as possible into the existing network of cash flows and money and increasing that magnitude over time. it's incredibly hard to achieve this kind of bootstrap (verging on the impossible) without either equity or debt.

real businesses in the real world require capital goods and services, on time, on budget, and guaranteed. debt is a mechanism for getting those goods and services in a reliable manner that has successfully been used for thousands upon thousands (nobody knows for sure - read david graeber) of years. the miraculous thing is it turns the time value of money into something you can leverage now. also - interest rates for commercial debt are not the same as interest rates for personal or consumer debt - it differs in one very important function - commercial debt is supposed to increase profits so it very much depends on what the opportunity you are trying to finance is. consumer debt is a dead end and you better go in with eyes wide open - you're simply spending money on nice things. the same is not true with commercial debt which has an infinite number of permutations regarding motivation and returns.

every successful company carries some kind of debt. every single one. doesn't matter if it's the spread on your payroll, net 30 invoices from your suppliers, amex charge card debt, garden variety credit card debt, structured loans, capital leases, or a simple "iou" to the local coffee shop for your daily commissary deliveries, it's a fundamental property of how people interact with each other in the real world.

I'm bootstrapping now and growing organically (as well as keeping the site invite-only to handle scaling slower) and it's been an interesting ride. I know if I could bring on a business/marketing person I could take it to a VC and really start hammering away at it, but I've also gotten past MVP-stage on my own and the service is profitable and steadily growing (aside from fully covering my living expenses) and I have no loans out for the company / debt-free. I keep getting a stage later than I thought I would on my own, so I dunno ... I'm a software person not looking to run a business but work on my own products/services.

There's definitely an ego portion involved I think, but definitely less so than my worry about raising VC debt and losing control of "my baby". At some point I will have to say "this is where someone else more experienced takes over" and I think that day is quickly coming ... so long as I can work on the technical side / features, I think I'm ok with that ... I could not see myself being a CEO because it's just not that interesting to me.

You should not purchase hundreds of thousands of dollars worth of ads until you have a very good understanding of your unit economics and know that this ad spend will be profitable. This is invariant regardless of whether you propose to fund that with cash or credit.

Contrary the article, having credit cards available is a very, very useful thing as a self-funded entrepreneur. Particularly when you're mostly cash flow positive, they're an instant discount on many goods and services, and they allow you to cover week-to-week or month-to-month variability in cash flow without business or social consequence.

Also, while I would strongly advise against running up $X0k in debt prior to launch, if you've got a decently operating business they're a reasonably cheap and very available form of credit. I've spiked my cards to, hmm, probably $80k or so at points over the years. That implies an interest expense of roughly $1,000 per month (assuming you revolve it). Interest is like any other business expense: $1,000 is cheap at the price if it buys you $2,000 of increased opportunities.

Whatever business idea you are working on, and assuming it has the potential to become a money-making business one day, the decision to raise money or bootstrap should depend on what minimizes your overall risks and maximizes chances of success.

If bootstrapping, and if bandwidth-limited, you would be growing slowly while the competition / market could be moving at a faster pace, thus increasing your risks. If this is the case, it may be better to raise money and hire people to increase your pace.

If you raise money, it should be to solve some real and key problem you have that is solvable with money. That problem may be skill / bandwidth, advertising, patenting, whatever. As far as the problem is real (which means solving the problem will reduce your risks considerably) and it is solvable with money, it is better to raise money than to bootstrap.

If you are wrong somewhere in your assessment on what your risks are, where money can and cannot help, how fast the market will end up moving, etc., you are likely to make a suboptimal choice for yourself.

The general sentiment of bootstrap, get traction, get paying customers etc... is generally accepted by the vast majority of serious entrepreneurs, but I think the idea that moving forward you will be able to get to an MVP with no budget will become very difficult. This is largely because the projected technologies of the future will require much more up-front capability to even prove useful to a potential user than ever.

Doing anything useful or reliable with machine learning, computer vision, data processing, image processing, robotics, genetics or nanotechnology takes years of practice engineering and studying. Those are the frontiers 10 years from now and to think you could bootstrap a competitor to SIRI or QR reader etc... without already having a significant background in it is in my mind far fetched.

I would love to see this proven wrong with the creation of an API/framework/toolset that allows people with <5yrs in engineering to create such products.