By Sanjay Modi
Sanjay Modi, managing director for APAC and Middle East at Monster.com, thinks that entrepreneurs should consider starting their business without any external funding.
The harsh reality of a start-up is the 50 percent mortality rate in the first five years of creation.
Every entrepreneur’s aim is to materialise their billion-dollar company. Not only do they want to make it big, but also successful enough so that, for example, the competition acquires their business, or enables them to expand into more branches, or perhaps open the company to the public who can buy shares.
Seeing that small to medium enterprises (SMEs) and start-ups comprise 80 percent to 90 percent of business in the GCC, this begs the question of funding – shall one bootstrap it and enjoy the liberty of being his/her own boss or let go of company shares to obtain funding from investors?
The terminology itself and the analogy behind it has always amused me. It refers to pulling oneself up using one’s own bootstraps, which when one tries it will certainly make that person fall backward.
Interestingly, in the start-up vocabulary, it has a different interpretation altogether. It refers to arranging the funds for the start-up venture from one’s own personal savings, and not depending on capital from investor funding. Historically, Apple, Google and Microsoft all incidentally began operations from garages and were personally funded by their respective founders. Monster.com was no different.
Given the easy accessibility to huge sums of money from investors and venture capitalists, start-up founders now seldom opt for bootstrapping to start their ventures. In the GCC, about 50 percent of SMEs and start-ups find funds from within the family, 40 percent receive bank loans and 10 percent find other sources like angel investors, private firms or their savings.
Therefore, it may be tempting to chase your dream. Through investor funding, the founder would have enough money to get all the resources required for the project. Whereas, with bootstrapping, the start-up founder has to dig deep into his own personal savings, and has limited resources. Hence, his or her spending is more disciplined and wise, focussing on needs rather than wants.
What makes bootstrapping attractive, however, is that it offers you speed to market your idea. If you can source relevant funds to start the project, you can initiate the project right away. The time needed to seek an outside investment alone would be three to six months minimum.
Bootstrapping gives you the thrill to be your own boss and realise your vision for growth, which is not the case with investor funding.
A “bootstrapper” also has the flexibility to switch plans midway when he or she sees there is need to modify his/her business approach, thus giving a bootstrapped business more flexibility over the investment alternative. With third party money involved, the start-up founder’s approach towards mission and goals of the business might clash with that of the investor.
A true entrepreneur should start the venture through bootstrapping, and once he/she has established a business growth path, he/she would look at raising capital for scaling the business.
Thanks to the Internet, we are living in an era of information overload. There is so much information on what has worked for start-ups and what has got them to fail. Budding entrepreneurs can learn from the mistakes of others and improvise on their business ideas to ensure success. I would recommend today’s entrepreneurs not to opt for the easy route of investor funding, unless their business model demands that approach.
Opt to fund your start-up project by bootstrapping, and experience the struggle of converting your big idea into a successful business through your own resources.
The hallmark of a true entrepreneur is to intrinsically understand the risk-to-reward ratio and be able to adapt to a changing environment to create more business opportunities.