Why Bootstrapping is the Best Way to Start a Business (20% Higher Success Rate)

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People sometimes have a misconception about starting a business -- they think you always need lots of money. But you don't need a small business loan, investors, venture capital (VC) funding, or a big bank account balance to start a business.

The truth is, many successful small businesses start with small amounts of money. It's called "bootstrapping." You literally pull your business up by the bootstraps, with almost no money in the bank. And bootstrapped businesses can work better than venture-backed startups.

Let's look at a few advantages of bootstrapping your small business.

Advantages of bootstrapping your business

When a company starts without the support of outside investors or bank loans, it can make business owners even more resilient, creative, and determined to find a way to succeed. So much so that some research shows bootstrapped companies have a 61% success rate, compared to 41% for venture-backed companies.

Market researchers Gitnux.org have more good news about bootstrapping businesses. It says bootstrapped businesses:

• Are 3.6 times more likely to achieve profitability
• Have a 25% higher customer retention rate
• Spend 33% less on marketing
• Have a 20% higher employee retention rate

There's something about starting a business without investors that seems to motivate entrepreneurs to be more frugal (lower marketing spend) and more profitable.

Bootstrappers find ways to get profitable faster. They build businesses based on real-time customer feedback. You can take your product to market, find what customers want, and deliver more of it.

Bootstrapped businesses also seem to have more loyal customers, and even more loyal employees than venture-funded startups. Maybe there's something about being a small, scrappy company that leads to more customer-focused service and a happier work environment.

Lessons from a successful bootstrapped company: PowerSetter

We interviewed a bootstrapping entrepreneur who built a business from the ground up. Mark Feygin is the founder and CEO of a fully bootstrapped company, PowerSetter , a digital energy comparison platform that helps more than 250,000 people save money on energy bills.

"If you value maintaining full control over your company and are comfortable with slower, steady growth without external pressure, bootstrapping might be ideal," Feygin said. "However, it requires a high level of financial acumen, a willingness to take on multiple roles, and the ability to leverage your network effectively."

Here are four lessons Feygin offered other bootstrapped business owners.

1. Use strict financial discipline

When you're bootstrapping a business, every dollar counts -- even if you just made a big sale or landed some new customers. "Track every dollar spent and prioritize essential expenditures," he said. "Avoid unnecessary costs and always seek cost-effective solutions. Use financial software to monitor cash flow and create a budget that aligns with your revenue projections."

2. Be versatile and adaptable

Small business owners need to wear many hats and be willing to tackle any job or project. Sometimes you're a CEO in a boardroom, and sometimes you're a janitor. This is especially important for bootstrapped businesses.

"From marketing to sales to customer service, bootstrapping requires versatility," Feygin said. "This not only saves money but also gives you a deeper understanding of your business operations. Learn new skills through online courses and apply them directly to your business."

3. Focus on your customers -- and get customer feedback

Bootstrapped small businesses can have one surprising advantage: they are close to their customers. Their small size and the nature of having limited cash in the bank means bootstrapped businesses are often more responsive to customers.

"Engage with your customers regularly and seek their feedback," said Feygin. "Use surveys, social media, and direct communication to understand their needs and preferences. This feedback is crucial for product development and can help you make informed decisions without costly market research."

4. Optimize your revenue

Bootstrapped businesses have to make money as they grow -- and every new influx of revenue is another opportunity for growth. Find out what makes money for your small business, and do more of it.

"Identify your key revenue streams and double down on them," said Feygin. "Experiment with different pricing strategies, upsells, and cross-sells to maximize income. Keep your sales funnel optimized and ensure your marketing efforts are targeted and effective."

Bottom line

Bootstrapping, like any other way of starting a business, is not easy or risk-free. Success is not guaranteed. Gitnux says 66% of bootstrapped business owners work a side job while getting their business to profitability. But if you can hustle, learn, and adapt as you go, bootstrapping can help you get your business up and running.

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