CHAPTER 1
INTRODUCTION TO BOOTSTRAPPING
LEARNING OBJECTIVES
Understand the definition of bootstrapping and its inherent philosophies
Explain the various reasons that entrepreneurs bootstrap their business
ventures
Evaluate the ethical issues associated with bootstrapping
CHAPTER SUMMARY
This chapter presents a definition of bootstrapping in entrepreneurial ventures
based on the limited resources faced by most growing businesses. Bootstrapping
may come from the necessity for businesses with very limited resources. However,
bootstrapping can also be a conscious strategy employed to improve the
performance and financial outcomes of the business. There is a moral imperative to
bootstrap for some entrepreneurs who weigh heavily the sense of stewardship they
have toward the various stakeholders who contribute the resources needed to start
and grow their companies. But there is also an ethical dark side to bootstrapping
when it is done in ways that take advantage of suppliers and employees.
CHAPTER OUTLINE
I. Definition and Philosophy of Bootstrapping
A. Definition of entrepreneurship -- The process of creating value by
bringing together a unique combination of resources to exploit an
opportunity.
B. Implicit in this definition is that entrepreneurs pursue opportunities
without regard to resources controlled.
C. Studies show that average start-up capital for new ventures in US is
$10,000
D. “Bootstrapping” come from axiom: “pulling oneself up by the
bootstraps” relating to those who succeed with nothing by their own
will
E. Definition of bootstrapping -- the process of finding creative ways
exploit opportunities to launch and grow businesses with the limited
resources available for most start-up ventures.
F. Used by small businesses and high growth ventures, start-ups and
established firms
G. Bootstrapping activities include:
1. finding ways to achieved desired business goals and objectives
when start-up capital is limited
2. minimizing the need for outside financing (debt and equity)
3. maximizing the impact of funding invested by the
entrepreneur
4. methods for optimizing cash flow.
II. Why Bootstrap?
A. No Available Funding
, 1. Young entrepreneurs
2. Economically disadvantaged
B. Limited External Sources of Funding for Start-Ups
1. Venture capital and other external equity funds only small
percentage of start-ups
2. Banks don’t generally lend to start-ups
C. A Desire to Delay External Funding – “extending the runway”
1. Reduces ownership dilution
2. Maintains entrepreneur’s control of venture
3. Protects intellectual property
4. Raising external funding takes time away from starting and
running the venture
D. A Desire to Keep 100 Percent of Ownership
E. Minimizing Exposure to Risk
1. Risk associated with debt
F. Create a More Effective Business
1. Entrepreneur learns to be more flexible and resourceful
2. Too much money during start-up leads to wasteful and
unnecessary spending
G. The Need to “Look Big”
1. Looking professional
2. Looking competent
H. Increase Income and Wealth – both come from improved cash flow
from bootstrapped business
I. Stewardship and Prudence – responsibility to stakeholders who
provide resources
III. The Ethics of Bootstrapping
A. Should not abuse relationships with suppliers and employees to
improve cash flow – unethical form of bootstrapping
DISCUSSION QUESTIONS
1. What is the definition of bootstrapping? How does it relate to the
general definition of entrepreneurship?
Bootstrapping -- the process of finding creative ways exploit
opportunities to launch and grow businesses with the limited
resources available for most start-up ventures. Implicit in the
definition of entrepreneurship is that opportunities will be pursued
without regard to the available resources under the entrepreneur’s
control. Bootstrapping, then, is the set of tools, techniques and
practices that facilitate entrepreneurial ventures with limited
resources.
,2. Why do entrepreneurs bootstrap their businesses? Can you identify
reasons to bootstrap that go beyond those associated with the limited
financial resources available to most start-ups?
Entrepreneurs often bootstrap to maintain control of the venture and
avoid ownership dilution. It allows them to keep most or even all of
the ownership of the business. They also bootstrap to limit or even
avoid the need for debt financing, which often required personal
guarantees and pledging of personal assets such as the entrepreneur’s
home. Bootstrapping also improves the entrepreneur’s ability to
create income and wealth. The entrepreneur gets paid when there is
excess money at the end of the month after all bills are paid.
Bootstrapping can help keep costs down and hasten the point at
which there is enough cash for the entrepreneur to get paid. Wealth is
generated for the entrepreneur in the business venture based on the
value created by expected future cash flow from the business.
Bootstrapping helps improve cash flow, and thus, improves the value
of the business.
3. List and describe the nine reasons that entrepreneurs bootstrap. List
possible examples for each.
a. No Available Funding – young or economically disadvantaged
entrepreneurs
b. Limited External Sources of Funding for Start-Ups – banks
don’t lend to start-ups and equity funders only provide money
to a small number of ventures
c. A Desire to Delay External Funding – entrepreneur may want
to protect intellectual property, reduce the dilution of
ownership, save time it would take to find funding for creating
the venture, or maintain control
d. A Desire to Keep 100 Percent of Ownership – many
entrepreneurs do not want partners, so bootstrapping can help
maintain ownership control
e. Minimizing Exposure to Risk – the risk of debt financing was
made particularly clear during the banking crisis that started
in 2008. Many entrepreneurs had loans called in the wake of
the banking crisis. Bootstrapping might have helped reduce or
even eliminate the need for debt for these businesses and the
risk it created.
f. Create a More Effective Business – many larger businesses that
bootstrapped during start-up find that these techniques can
help make them more efficient and profitable as they grow.
g. The Need to “Look Big” – can help secure resources needed to
look like a legitimate business during the time an entrepreneur
is trying to secure early customers
, h. Increase Income and Wealth – improved cash flow from
bootstrapping leaves more money for the entrepreneur after
bills are paid.
i. Stewardship and Prudence – can help maximize impact of
money invested by equity partners in the business.
4. Bootstrapping can be a strong ethical approach to managing a
venture, but it can also be used in unethical ways. Explain.
Some entrepreneurs try to improve their cash flow by delaying
payments to suppliers or holding paychecks past the normal payday.
While some call this bootstrapping, it is unethical and should be
avoided if at all possible.
ACTIVITIES AND EXERCISES
1. Find examples of businesses using bootstrapping from secondary sources
such as Inc, Entrepreneur, or even the business section of the local paper.
Apply the definition of bootstrapping to the examples you find.
2. Interview an entrepreneur to determine how bootstrapping was used in his
or her venture. Determine specifically why the entrepreneur used
bootstrapping techniques. Offer examples of how the entrepreneur
bootstrapped and the savings it created.
INTRODUCTION TO BOOTSTRAPPING
LEARNING OBJECTIVES
Understand the definition of bootstrapping and its inherent philosophies
Explain the various reasons that entrepreneurs bootstrap their business
ventures
Evaluate the ethical issues associated with bootstrapping
CHAPTER SUMMARY
This chapter presents a definition of bootstrapping in entrepreneurial ventures
based on the limited resources faced by most growing businesses. Bootstrapping
may come from the necessity for businesses with very limited resources. However,
bootstrapping can also be a conscious strategy employed to improve the
performance and financial outcomes of the business. There is a moral imperative to
bootstrap for some entrepreneurs who weigh heavily the sense of stewardship they
have toward the various stakeholders who contribute the resources needed to start
and grow their companies. But there is also an ethical dark side to bootstrapping
when it is done in ways that take advantage of suppliers and employees.
CHAPTER OUTLINE
I. Definition and Philosophy of Bootstrapping
A. Definition of entrepreneurship -- The process of creating value by
bringing together a unique combination of resources to exploit an
opportunity.
B. Implicit in this definition is that entrepreneurs pursue opportunities
without regard to resources controlled.
C. Studies show that average start-up capital for new ventures in US is
$10,000
D. “Bootstrapping” come from axiom: “pulling oneself up by the
bootstraps” relating to those who succeed with nothing by their own
will
E. Definition of bootstrapping -- the process of finding creative ways
exploit opportunities to launch and grow businesses with the limited
resources available for most start-up ventures.
F. Used by small businesses and high growth ventures, start-ups and
established firms
G. Bootstrapping activities include:
1. finding ways to achieved desired business goals and objectives
when start-up capital is limited
2. minimizing the need for outside financing (debt and equity)
3. maximizing the impact of funding invested by the
entrepreneur
4. methods for optimizing cash flow.
II. Why Bootstrap?
A. No Available Funding
, 1. Young entrepreneurs
2. Economically disadvantaged
B. Limited External Sources of Funding for Start-Ups
1. Venture capital and other external equity funds only small
percentage of start-ups
2. Banks don’t generally lend to start-ups
C. A Desire to Delay External Funding – “extending the runway”
1. Reduces ownership dilution
2. Maintains entrepreneur’s control of venture
3. Protects intellectual property
4. Raising external funding takes time away from starting and
running the venture
D. A Desire to Keep 100 Percent of Ownership
E. Minimizing Exposure to Risk
1. Risk associated with debt
F. Create a More Effective Business
1. Entrepreneur learns to be more flexible and resourceful
2. Too much money during start-up leads to wasteful and
unnecessary spending
G. The Need to “Look Big”
1. Looking professional
2. Looking competent
H. Increase Income and Wealth – both come from improved cash flow
from bootstrapped business
I. Stewardship and Prudence – responsibility to stakeholders who
provide resources
III. The Ethics of Bootstrapping
A. Should not abuse relationships with suppliers and employees to
improve cash flow – unethical form of bootstrapping
DISCUSSION QUESTIONS
1. What is the definition of bootstrapping? How does it relate to the
general definition of entrepreneurship?
Bootstrapping -- the process of finding creative ways exploit
opportunities to launch and grow businesses with the limited
resources available for most start-up ventures. Implicit in the
definition of entrepreneurship is that opportunities will be pursued
without regard to the available resources under the entrepreneur’s
control. Bootstrapping, then, is the set of tools, techniques and
practices that facilitate entrepreneurial ventures with limited
resources.
,2. Why do entrepreneurs bootstrap their businesses? Can you identify
reasons to bootstrap that go beyond those associated with the limited
financial resources available to most start-ups?
Entrepreneurs often bootstrap to maintain control of the venture and
avoid ownership dilution. It allows them to keep most or even all of
the ownership of the business. They also bootstrap to limit or even
avoid the need for debt financing, which often required personal
guarantees and pledging of personal assets such as the entrepreneur’s
home. Bootstrapping also improves the entrepreneur’s ability to
create income and wealth. The entrepreneur gets paid when there is
excess money at the end of the month after all bills are paid.
Bootstrapping can help keep costs down and hasten the point at
which there is enough cash for the entrepreneur to get paid. Wealth is
generated for the entrepreneur in the business venture based on the
value created by expected future cash flow from the business.
Bootstrapping helps improve cash flow, and thus, improves the value
of the business.
3. List and describe the nine reasons that entrepreneurs bootstrap. List
possible examples for each.
a. No Available Funding – young or economically disadvantaged
entrepreneurs
b. Limited External Sources of Funding for Start-Ups – banks
don’t lend to start-ups and equity funders only provide money
to a small number of ventures
c. A Desire to Delay External Funding – entrepreneur may want
to protect intellectual property, reduce the dilution of
ownership, save time it would take to find funding for creating
the venture, or maintain control
d. A Desire to Keep 100 Percent of Ownership – many
entrepreneurs do not want partners, so bootstrapping can help
maintain ownership control
e. Minimizing Exposure to Risk – the risk of debt financing was
made particularly clear during the banking crisis that started
in 2008. Many entrepreneurs had loans called in the wake of
the banking crisis. Bootstrapping might have helped reduce or
even eliminate the need for debt for these businesses and the
risk it created.
f. Create a More Effective Business – many larger businesses that
bootstrapped during start-up find that these techniques can
help make them more efficient and profitable as they grow.
g. The Need to “Look Big” – can help secure resources needed to
look like a legitimate business during the time an entrepreneur
is trying to secure early customers
, h. Increase Income and Wealth – improved cash flow from
bootstrapping leaves more money for the entrepreneur after
bills are paid.
i. Stewardship and Prudence – can help maximize impact of
money invested by equity partners in the business.
4. Bootstrapping can be a strong ethical approach to managing a
venture, but it can also be used in unethical ways. Explain.
Some entrepreneurs try to improve their cash flow by delaying
payments to suppliers or holding paychecks past the normal payday.
While some call this bootstrapping, it is unethical and should be
avoided if at all possible.
ACTIVITIES AND EXERCISES
1. Find examples of businesses using bootstrapping from secondary sources
such as Inc, Entrepreneur, or even the business section of the local paper.
Apply the definition of bootstrapping to the examples you find.
2. Interview an entrepreneur to determine how bootstrapping was used in his
or her venture. Determine specifically why the entrepreneur used
bootstrapping techniques. Offer examples of how the entrepreneur
bootstrapped and the savings it created.
