Bootstrapping vs funding: List of pros and cons for startups

Starting a business is not an easy business. When building a successful startup, entrepreneurs often face a critical decision: should they bootstrap their business or seek external funding? Both approaches have their own merits and drawbacks, and the choice ultimately depends on the specific needs and goals of the venture.

In today's article, we have listed the pros and cons of both funding options to help you choose the best way to run your business. So keep reading!

Bootstrapping: The self-made business

Pros

1. Complete ownership and control: A major benefit of bootstrapping is that you maintain full control and ownership over your business. So the founders are not obligated to report to investors and retain equity. In short, you can make decisions and adjust your business model as you like without seeking approval from others.

2. Do business at your own pace: With your financial freedom covered by personal savings and early customers, you feel empowered to scale your business up or down at your own pace.

3. Become resourceful: Bootstrapping forces an entrepreneur to be more frugal and resourceful, which can lead to efficient business operations.

Cons

1. Financially burdening: If your business fails, you could lose all of your personal savings, and possibly damage relationships with friends and family who invested in your startup.

2. Limited growth and resources: Bootstrapping can restrict the capital available to quickly scale your business, which can be a significant disadvantage in a competitive market. Additionally, growing a startup requires resources such as hiring talent or investing in technology, which may not be possible due to financial constraints.

3. Risk for profits: Startups that are self-funded are eager to generate revenue but their profits are limited due to the lack of capital to capture the market share and resources to scale.

Funding: The growth mindset business

Pros

1. Capital is king: The main advantage of funding is that it gives your startup the necessary capital to grow and build credibility with customers and partners.

2. Abundant resources: Seeking external funding can help you develop innovative products, attract top talent, and make a significant impact with your branding and marketing efforts. With the right resources, your startup can scale and grow at a fast pace.

3. Expert guidance: Investors not only provide funds but also assist startups by connecting them with industry experts and networks to facilitate rapid business growth. Additionally, investors offer personal and valuable expertise that can contribute to the success of your business.

Cons

1. Lack of ownership and decision flexibility: Investors usually require a share in your company in return for their assets, which means you will need to submit some control over your business. They may also have certain expectations regarding growth and profitability, adding further pressure on you as the founder.

2. Pressure for profits: Investors fund startups as their business model's financial projections showcase good returns. This creates pressure on founders to bring profits within the stated timeframe that could affect business strategies and long-term goals.

3. Time is money: The process of pitching to several investors can be time-consuming to convince them which can take away your focus on building and growing your business.

Bootstrapping vs funding: Which path is the best?

Ultimately, the decision to bootstrap or seek funding will depend on factors like your circumstances and startup goals. So, if you are comfortable with taking on personal risk and want to maintain full control over your business, bootstrapping may be the best option for you. Alternatively, if you have ambitious growth plans and need big capital to scale quickly, external funding is ideal.