In order to run and scale a bootstrapped business (or if you ask me any business for that matter), you need to have two fundamentals sorted
In today’s age of startups growing at breakneck speeds & skyrocketing valuations, it is almost unfashionable to talk about bootstrapping. Throw in the fact that I am in the white-hot ed-tech space, writing for a magazine discussing disruption and you have the perfect recipe for a headscratcher. None of this makes sense now, does it? Except that it does. Let me tell you how!
Bootstrapping: Building a company from the ground up using personal savings and growing through subsequent cashflows.
Seems long drawn out and quite boring on one hand but a lot more sustainable and reliable on the other. In order to run and scale a bootstrapped business (or if you ask me any business for that matter), you need to have two fundamentals sorted.
1.) How large is the problem you are trying to solve: If the problem you are trying to solve isn’t faced by enough people, then your solution won’t make money no matter how innovative your solution is. Understand your market size well and learn how you can make a difference at the desired price point. Now that I’ve mentioned price, it is natural that the next point is introduced
2.) Sort out your unit economics: While a lot of startups chasing valuations have unit economics on the backburner, for bootstrapped businesses, it forms the very basis for your growth by definition. You will need clarity on how you will continue to have growing profits with growing revenues and increasing overhead costs. If the profitability is nearing zero as you scale, you might have to rethink your model.
Our company, Gradvine has been profitable since year 1 and has had 100% revenue growth year on year with increasing profitability. While the growth is steady, the disruption is real. Our customer base has made us leapfrog traditional, established firms in a matter of a couple of years making us one of the biggest players in the business. The bottom line is that disruption is possible for bootstrapped companies and you might not be entirely wrong chasing steady growth while trying to redefine your industry.
While the above two principles I’ve mentioned might seem very basic, the catch is that you need to ensure the above points are taken care of in a variety of scenarios. You also need to ensure that you abide by them over time. Once your business is up and running, you need to reinvest your capital wisely. Finding the balance between spending too aggressively and remaining too conservative is crucial. Covid has taught all of us, startup founders, that cash reserves/runway is incredibly important. We survived the impact of lockdowns because we had sufficient funds in the bank to sustain our expenses during the lull. However, while saving up for the rainy day might be good at an individual level, companies not reinvesting enough capital on growth can hurt in the long run. Too much cash in the bank means you aren’t identifying enough avenues of growth to invest in.
In summary, balance is key. Understand your business and the industry, abide by the basic principles and trust your gut instinct. Beyond that strap yourself in and get ready for an exciting ride full of ups and downs!
Source: Business World
