It’s cool to start your own business, on the outside at least, haha. Anyway, it’s what some would claim to be a “monumental” task and for those in industries that need funding, the path you choose – bootstrap or getting VC funds – can shape your journey. While both approaches are good in their own ways, there are also negatives to each path, specifically with securing VC funding becoming increasingly difficult. Today, we’ll run down the real truth about bootstrapping and VC backed startups.
Venture-Backed Startups: A Cushion and a Challenge
If or when you raise VC and step into the role of CEO, there’s an unnoticed safety net that comes into play. A VC-backed CEO will most likely make about $100K or more, on salary, per year. They don’t have to worry about anything but scrutiny. Usually, which adds to this little cushion, is that those CEOs typically have an agreement which guarantees 12-18 months of work, even if the VCs don’t want to fund the company anymore.
Advantages:
- Financial Security: Your salary is pretty much a lock for a set period of time. No more financial stress until your annual review comes up again, haha.
- Resources and Support: When you get backed by a VC, you sometimes, and I literally mean sometimes because it’s not so often, you get a whole set of other teammates. Valuable connections, a mentor, and some greater resources that are allocated to your startup – their new investment.
- Ambition Fuel: You don’t have to make crunches to make the finances work, so now your focus can be on scaling… Get to it!
Challenges:
- Baseline Stress: Even if you have financial security on paper, there’s a chip on your shoulder now. Not only do you have to prove to yourself and your self doubt that you’re worth it, but now you’ll always have an unmentioned pressure to show up for these VCs.
- Loss of Control: We’ll put this one simple. When a VC comes into the game, what was once your game, they expect a say in how the company is ran and this can lead to conflicts or shift the company completely away from what was once your initial vision.
Bootstrapping: Freedom and Frustration
On the flip side, bootstrapping means you’re spending what’s in your slowly diminishing savings account. This is a light-hearted joke (if you’ve seen, there are actual studies that claim those pushing for success in the startup world are broke themselves because they’re bootstrapping) as you’d be taking from the company’s revenue, or creating financing methods to fund your startup. Stress levels are high because it falls onto you and the reward is even higher since you can say you did it by yourself (and your team).
Advantages:
- Profitability Equals Freedom: If you get a massive lead on a massive client, it’s yours. A lot of founders who bootstrap typically can expect to take home massive chunks of money through dividends.
- Full Control: You built the plane and now you want to drive it. Good, that’s what bootstrapping is about. You have complete control over all decisions, the culture you build, and the operations.
Challenges:
- Initial Financial Strain: No explanation, just read it again.
- High Stakes: Profitability is the name of the game and the pressure is intense because your personal finances are tied directly to the success of your business. Your next decision always feels as if it also decides whether or not you eat tonight.
The Stress Spectrum
In both scenarios you’ll still have stress levels directly tied to your financial health. For VC-backed companies, you’ll have to meet high standards of the investors. For those who are bootstrapping, you’ll have stress levels directly dependent on your profitability. An example:
- Profitable Bootstrapping: Profits increase and stress decreases. More financial gain = more freedom.
- Unprofitable Bootstrapping: Your wife left, you couldn’t pay that contractor, stress is high because profits are low. You’ll be in the loop of seeking ways to get out of this slump which can be rewarding at the end, but extremely exhausting during the journey.
Respect for All Founders
Regardless of which route you take you’ll face a ton of challenges. It’s crucial to recognize and respect the different paths an individual would want to take. Afterall, it’s their dreams, and they’re just doing what they think is the best thing to get them to achieve those dreams. However, no bias here (wink wink), but bootstrapped founders often get a little extra whipped cream at the top of the banana split for the sheer grit and determination required to build a business with no external funding.
Whether you choose to seek VC funds or bootstrap, the key is to stay consistent, adaptable, and committed to your end goal. Both paths will lead to great success as long as you navigate the challenges that come along with perseverance and ingenuity.
