More often than not, one of the first thoughts of the entrepreneur remains to account for the finances themselves if the experience often led to knowing how to pass finances. It was launched without any external resources (bank loan or fundraising from capital investors) yet remains an interesting entrepreneurial financial strategy called bootstrapping. Gradually, the scientific community is taking hold of this original and original method of financing start-ups to better define it, appreciate its virtues and limits.
The 4 categories of bootstrapping
The methods and techniques of bootstrapping, close for some to “good managerial sense” or to economic creativity for others, can be classified into 4 main categories.
- The use of contractor-related resources : use of the salary of another activity, drain on personal resources, use of the home, recourse to unpaid or low-paid relatives or friends, renunciation of a salary in the start-up, recourse to barter (goods and services) , exchange of shares in the capital, obtaining loans from family or friends, etc.
- Optimization of resources related to sales : Prioritize customers, regulate quickly, separate from “bad” payers, develop economic models favoring payment advances, agree to discounts for cash payments, assignment of receivables, etc.
- Use of shared resources (mainly with other companies): establishments, employees, materials and equipment, production, logistics and distribution, groups groups, etc.
- “Strict” management of costs and investments : payment allowance, preference for location and leasing rather than acquisition, preference for second-hand rather than new, use of fixed-term jobs, etc.
The virtues of the bootstrap
The names are the examples of illustrious “bootstrappers” creators of planetary successful firms (from Coca-Cola to Apple via Dell…). These successes are often associated with the very virtues of bootstrapping, virtues which then make it possible to attract and consolidate external investors:
- Rapid access and adaptation to the market : bootstrapping often induces very rapid access to the market (reduced R&D costs and delays, delays linked to the search for non-existent capital, the creator’s resources being limited, it is important to obtain the “first checks” as quickly as possible). Adaptations to the markets remain faster than if the entrepreneur had to report to investors and justify the changes to his Business Plan.
- Attention to customers : turnover very quickly becomes the main resource (“better to make money than to borrow it”) and the bootstrapper will do everything to satisfy his customers and approach new ones. The result is a significantly more positive and faster learning curve.
- Prevalence of cash and leverage : the bootstrap quickly pushes the entrepreneur to focus on the level of cash and to promote the development of strategies that increase the profitability of investment activities (franchise, joint venture, partnerships, etc.).
- Efficiency as much as efficiency: the bootstrapper will optimize the management of these costs and limit the effects of “burn rate”, it will favor the “I need” rather than the “I want”.
A mechanism that I also marked by constraint and fragility
However, today, the granted researches do not make it possible to decide on the superiority of bootstrapping on the other modes of financing. Strong growth and sustainability frequently appear to be linked to bootstrapping, plus some results highlight the fragility and weakness of the financed performance of the companies financed thanks to it.
For a young entrepreneur, the bootstrap reveals the advantage of a financial counterpart due to the impossibility of raising funds than a real strategic choice. The bootstrap is then assimilated to a financial modality necessary for the survival of the company and suffered by the entrepreneur.
Bootstrapping reflects the very essence of finance and the entrepreneurial spirit. It is no longer reserved for start-ups alone but also develops within larger companies to develop entrepreneurial projects and infuse them with an entrepreneurial dynamic. He is also at the origin of many innovations in the financing of SMEs.
Strangely, his apprenticeship is however not systematic and the main part is given to the business plan and the pitch facing investors. It should therefore be remembered that “bootstrapper” knowledge remains as important as “pitcher” knowledge.