For aspiring startups, the large number of funding models to choose from is both a boon and a bane. You may not have a shortage of options, but you could end up confused as well.
To avoid confusion, you might decide to fund your business out of your own pocket. Nothing wrong with bootstrapping, since you won’t have to give up equity to accelerators, angel investors or VCs, but you could be at a disadvantage.
Using your own financial resources or personal credit cards to start a business, or tide you over until you get a business loan approved is critical. It must be treated and done with care and with thorough analysis of all the risks and rewards. Otherwise, you could end up bankrupt.
Risk of getting into debt is very high
Because you’re using your own financial resources, you must make a profit or revenue the soonest time possible. Otherwise, you’re at risk of drowning, or even losing it all. When your own savings account can no longer handle the outgoing cash flow, you are likely to turn to debts that are at risk of going out of control. If this is the case, you should have borrowed business funds in the first place.
Business growth will be slow
Without enough funds injected in your startup, you would have difficulty sourcing materials that are key components in your business development. This also means you won’t be able to stick to your schedule and reach your growth goals in time.
Profit is hard to come by
The lack of funds to acquire maximum resources will cause organic development to stagnate, resulting in a slow or lack of profit. That’s not how running a business is supposed to be. You’re supposed to be making money, earning a revenue that will fund the next round of operation.
Bootstrapping is not a practical choice for businesses requiring large investments, such as importing or manufacturing. And, unless, you have a huge pile of money at your disposal, it might still be not enough.
Lack of networking opportunities
Angel investors and venture capitalists have connections that you can use to your advantage. A friend of a friend could be someone who can be a mentor, another investor, or a source of a great business idea.
Sure, there are advantages to bootstrapping, and many people were able to pull it off. But it pays to weigh the pros and cons before you decide to take this route.
How about you connect with business investors instead?
Not only do they offer great opportunities for networking, but they can add authority and credibility to your business. Imagine having big names connected to your company, backing you up. It is like being recommended because you can be trusted, you have the goods and can deliver.
More importantly, you will have the business funds you need to kick start your startup. No need to put off buying raw materials, or hiring more employees, which will propel you forward.
Bootstrapping? Think about it long and hard.