Bootstrapped vs Funded Company

Bootstrapped vs Funded Company

Emerging markets are countries that share similar features with developed markets but don’t meet all their requirements. Among these markets are many that are working to build their economies and status, ones that are aspiring to become fully developed. To meet the demands of the emerging market, startup culture is catching up all across the globe.

For the successful initiation and running of any entity be it a startup or an established company, Funds play a pivotal role. Funding is the energy that keeps a venture running. A company that does not have a funding source is more likely to sink under the weight of its own debt. A company can obtain money through a variety of channels, and more than one alternative can be used. Funding is required for all the operations at the beginning of the startup, including materials, office supplies, equipment, salaries for employees, expansion into new regions, and reserve money in case of an emergency.

Small businesses and startups have always been popular. While most businesses take off immediately, others grow slowly and steadily. There are a lot of factors that come into play in the making of a business, money is undeniably a significant one. When it comes to financial assets, many businesses look to a variety of sources to assist them to get their business up and running. Some people save their money and put it into their new firm, while others look for outside capital (such as investors) to assist them. They’re referred to as bootstrapped and funded companies respectively.

When it comes to financial assets, many businesses look to a variety of sources to assist them to get their business up and running. Some people save their money and put it into their new firm, while others look for outside capital (such as investors) to assist them. They’re referred to as bootstrapped and funded companies respectively. 

The term “bootstrapping” refers to starting a business with any funds you have on hand and the earnings you generate. It is the process of beginning a business without relying on outside finance. The term comes from the phrase “pull up your bootstraps!”, which refers to doing something independently and on their own efforts. In order to bootstrap a business, you start with a small amount of your own money. As the business starts up, revenue is reinvested into operations, development, and expansion.

The basics of bootstrapping a company are:

  1. Establish the initial investment. People often begin by investing their own money or use funding provided by friends and family. This is what is known as “seed funding”. Once this has been acquired, you begin the process of setting up your business alongside working a full-time job. Your income from your main job will go into this new business until it is ready to take off and begin operating.
  2. Launch a working service or product: release a functioning product or a reliable service as soon as possible. This helps attract attention and also get you to the next step sooner!
  3. Grow by using consumer funds: To meet its operating expenses, start saving up sales funds. Funds from customers are crucial to the success of the business, so being able to increase sales and advertise your business is also vital.

Bootstrapping has the following major benefits:

  • You have complete control over the company and are not expected to answer to investors. Unless you decide to work with an investor as a backup.
  • Expenses and budgets are managed more efficiently
  • You place the needs of consumers at the top of your priority list. It allows you to fully focus all your attention on the key aspects of any business- sales, product development, advertisement, etc.
  • If you can succeed bootstrapping, you will have a powerful, reliable, and customer-focused business in your hands.

Furthermore, it is important to emphasize that bootstrapping does not entail giving up a huge sum of equity in return for bringing in investors. Neither involves taking out a loan, although this isn’t wrong either. The main idea of bootstrapping a business is to avoid spending in areas except where absolutely necessary, this is one of its major benefits. Credit and debt will become an added expense in the future, so it isn’t long-term either. Overall, bootstrapping focuses on making the most of your seed funding, income, and consumer funds. Use caution when taking out loans or credit. 

Many successful brands and companies began as bootstrapped companies, for instance:

From his dorm room at the University of Texas at Austin, entrepreneur Michael Dell developed the legendary company that bears his name- Dell. He produced and marketed computers constructed from off-the-shelf equipment there. As the company flourished, he eventually dropped out of school and made it his full-time job.

Funded companies, on the other hand, are in a different league altogether. 

In a funded company, an idea for a business is explored and investors are sought to invest in it. These investors who provide money to a company in exchange for equity are known as venture capitalists. If a business owner wants financial freedom, the investor contributes enough for them to pursue their interests. Along with these investors, there are other people who contribute ideas, suggestions, expertise. This type of strategy provides everything you need in one place, so you can build your business and get the head start you need. By obtaining funding, you will get a smoother journey, and you can accomplish high results quickly if you utilize your resources strategically.

Another method is you can raise funds is through loans by borrowing from commercial lending organisations or banks. Lines of credit like these are classified as long-term assets on a company’s balance sheet, and the company’s debt is reduced over time as the loan is repaid. As part of the cost of borrowing from a bank, you would also have to pay interest on the loan. Due to the fact that interest a company must pay to its lender is considered a cost, the company would also save on taxes. It is a great backup plan as well, in case seed funding runs out.

While it may be difficult at first, many startups and businesses particularly in UAE can engage with campaigns supported by the UAE’s investment plans, connect with a startup incubator, or attend the numerous tech and global business events organised expressly to aid the UAE’s emerging industries and businesses. Having investors and funds on your side can mean that your business can be launched smoothly in a short amount of time, but there are more advantages to taking this strategy. There will be no need for a large loan from a bank. In addition to your investors, you also get business expertise, which is a great asset.

As an example, consider the well-known Amazon, which was founded by Jeffrey P. Bezos and now earns over $61 billion in sales annually. What began as a business in Bezos’ garage and has since grown into the world’s largest online retailer. Initially, Bezos took seeding funding from his parents, but it wasn’t sufficient so he sought an outside investor- which was about $8 million from Kleiner Perkins Caufield and Byers. Once he received the fund for Amazon, the company went public to raise more funds. By 1999, Kleiner Perkins Caufield and Byers’ original investment had returned over 55,000%.

Since then, the company has become one of the world’s largest corporations, focusing on long-term growth and international power.

Dell and Amazon were only two examples of many other companies that have used bootstrapped and funded strategies in building their companies. There are many who tried one over the other and succeeded on the first attempt. While there are also companies that started with one strategy but had to try different approaches before they found the one that suited them best. 

As a result of this race to become the next big startup or business owner, countries like the UAE are reaping great rewards as emerging markets. According to The Economist’s analysis of 66 countries in 2020, the UAE emerged as the second-fastest-growing market in the Arab world and was among the top 20 fastest-growing economies globally

Currently, UAE’s economy is growing at a healthy pace. This is encouraging news for the future of many upcoming industries in the UAE. The country is establishing itself as a top startup and investment destination in the global entrepreneurial landscape and the UAE’s future industry plans also look promising. Most upcoming small businesses or startups are supported by the government through a variety of means, such as allowing foreign ownership, offering entrepreneur visas, and providing funding and support through various investment plans. Since the government has provided ample opportunities for both the country and startups to rise above their game, it’s up to business owners and leaders to make the most of them.

Once you understand the funding options and opportunities available to your company, it’s important to determine what tactics and strategies your business model will need. Every business is distinct and needs a personalized approach. I don’t feel one is superior to the other.

Understanding what your business needs based on your business goals is one way to go about it:

  • The primary objective of your company.
  • Where do you see your company going.
  • How much authority do you want over your company.
  • The expected return on investment from your business.

We would be glad to help you if you need information or help regarding marketing or getting started. Humd is an In5 Incubated startup that aspires to be the largest printing Marketplace in the UAE. We understand the struggles businesses go through and the inability to invest in technological upgrades, as well as their desire to earn an increased income without incurring further debt. 

Abhyuday Gupta

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