MBA1300 Q&A Wednesday: What are the pros and cons of bootstrapping my business?

Let me tell you about Intuit QuickBooks. When I was starting out my business, I remember sitting at my desk late at night not working on my business but cleaning up numbers, tracking and reconciling payments and wondering how this became my life. But once I automated the admin side of things of my finances, those nights had disappeared and I felt a whole lot better. Outdo it with intuit QuickBooks QuickBooks is the trusted end to end solution that businesses rely on for getting paid, managing finances, paying employees, finding new customers and more. QuickBooks provides a team of AI agents and trusted experts, so doing it yourself no longer means doing it alone. Their payment agent gets you paid faster, their customer agent finds leads, follows up and secures more sales, and the accounting agent automates and categorizes transactions. Get your critical business jobs done with QuickBooks on the Intuit platform. Ready to save on New Tech? It's time for Dell Tech Day's annual sales event celebrating our customers with fantastic deals and benefits. Perks include Dell Rewards, free shipping, premium Support and more.

PCs like the Dell 14 with Intel.

Core Ultra processors will help you do more faster and with a premium suite.

Of monitors and accessories, you can upgrade.

Your whole setup with amazing savings.

Visit Dell.com deals. Hey O welcome to the $100 MBA Show. Because the journey of building a business is filled with questions, we have some of those answers in our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar mba, a complete business training and community online and today's episode is a Q and A Wednesday episode. On our Q and a Wednesday episodes, I answer a question from one of you, one of our listeners. If you have a question you want to ask, just email me over at Omar MBA Net. Today's question is from Ricardo and Ricardo asks what are the pros and cons of bootstrapping my business? I'm starting a business and I want to bootstrap it by myself. Can you please share your knowledge and experience when it comes to bootstrapping? What do you think are the pros and cons? Cheers Ricardo. Thanks for the question Ricardo. I'll be answering it in today's episode because hey, our business is bootstrapped so I can tell you firsthand our experiences with both a hundred MBA and Webinar Ninja. What are some of the pros and cons and things to look out for? Also, why some businesses are a lot easier to bootstrap than others. So sometimes it's good to start with a business. It's a little easier to bootstrap, use the funding, the money you make the profits to, to fund a business. That's not as easy as a bootstrap. So that's something that we did that really has helped. So I'll be sharing all that and answering Ricardo's question. So let's get into it. Let's get down to business. So Ricardo asks in today's Q and A Wednesday's episode, what are the pros and cons of bootstrapping a business? He wants to bootstrap his business, which means he wants to self fund it. He doesn't want to get any outside funding, whether it's investors or a loan or anything like that. He wants to kind of make it on his own, with his own capital, whether it's savings or starting small and using the profits from his initial sales to fund the growth of the business. Firstly, let's talk about bootstrapping or self funding for a moment. If you asked me this question maybe three or four years ago, I would have told you bootstrapping, it's the only way to do it. It's the best way. Don't let anybody get any equity, keep the profits for yourself, all that kind of stuff. But I've grown and I've learned and I actually love bootstrapping and all. But, but it's not for everybody, it's not for every business. And there's nothing wrong with getting funding, with getting investors, with giving up equity if that's something that you want to do. Remember, when you give up equity in exchange for cash, you're also mitigating risk. You're spreading the risk amongst other people and not just by yourself. So that's something that you should look at as well. So today, if you ask me, I'm going to say bootstrapping is a great model for a business. It has its pros and cons, but it doesn't mean that getting investment is a bad idea. Now let me start with the cons of bootstrapping a business. Number one, it's the risk you're going to need to give up your own capital, whether it's your savings, a portion of your salary that you're making in your day job, whatever it is, you're giving up your own money to start a business. So all the risk is on you. If the business doesn't work out, if it fails, if it doesn't, you know, return a profit quickly, those losses are on you, on your bank account, and it's something you have to come to terms with. This is something that is a reality that could happen, and you have to be okay with that. So everybody's situation is different. If you're single, you don't have other dependents. This might feel like an easier choice or a more tolerable choice because, hey, worst case scenario, it doesn't work out, no problem, start over, get a job, no problem. But it's not so easy. If you have dependents, you have people depending on you. If you have bills coming in that are quite high, so the risk is all on you. That's number one. Con number two, your funding is going to depend on your growth, and your growth is going to depend on your funding. So it's a bit of a hamster wheel. It's a bit of a cycle here, or a loop, I should say. So you're going to need some money to start this business, to fund it, to hire people. You know, even if you're, you know, bootstrapping this and doing this completely by yourself, somebody's going to, you know, do some aspect that you can't handle, whether it's, you know, creating your website or writing sales copy or whatever it is. So it's going to require some cash, and then that's just to launch the business. And then you're going to need some money to market the business so you can get some customers. And a lot of times when you're bootstrapping, money runs out and you're going to have to kind of wait until you make some more money through sales. So it's a little bit of a slower process because your business relies on money to grow, and you get money when you grow. So it's a bit cyclical. So you got to be really thrifty. You got to lower your expenses, your business expenses, even your personal expenses as much as possible to make the dollar last longer. When it comes to your product and sales, you really can't undercut yourself. You have to price yourself properly. Your pricing has to be just right so you can be making enough money to keep on growing. A lot of people make a mistake where they price a product too low and they don't make enough of a profit, and therefore they can't make enough money to keep growing the business. So not only is the common one the risk there, but you also have to deal with the cash flow issue that you have when you're starting. And as you're growing now, obviously this starts to get better as your business grows and gets what we call escape velocity. We start building and you start getting more customers and these customers start feeding the business and you're making enough money to kind of run the business and grow the business through the profits. Third thing is you gotta have to deal with your own expenses, your own salary. If you're going to be working on this business full time, you got to figure out how you're going to live, how you're going going to pay yourself some sort of salary, especially when you're getting started and you still don't have any sales. This is where a Runway really helps some savings, where you again lower your expenses. Obviously, if you get funding, you can pay yourself a salary. That's the part of funding that mitigates the risk. Right. So these are the three major challenges. The risk, the cash flow of getting started and growing and then making sure that you actually are able to live and you can be able to pay your own personal expenses as you're getting started. So as you can see, all of these challenges are cons are financial. Now let's get to the pros. The pros is that it's your business 100%. You reap all the benefits, the spoils are all yours. So if your business is a success and you sell it in five years or 10 years, it's all yours. You don't have to divvy up the pie in any way. Just gotta obviously pay your taxes. But other than that, you're golden. Huge pro number two, you don't have any other stakeholders that, that are calling shots. When you have investors, they're going to want to see a certain level of growth to get a return on investment. This is typical. So they're going to demand certain things in terms of your level of growth, decisions that will change the way you do business. Maybe it's going to take your business to a different level or a different direction where you're not comfortable and you're really not going to have the control to say that 100% because you owe these people, they invested in you and they want to see a return on investment. Now obviously every agreement, every investment is different. But generally, if somebody's going to put money into it, they're going to want to see a return. They want to see certain moves towards that return. So by being bootstrapped and self funded, you only answer to yourself. Now I kind of want to say that this is generally good, but it could be a con because you're not being held accountable. A lot of us coast when we're bootstrapping and we don't push ourselves to hit certain targets. Now, this can be curable. This could be remedied by having a business coach, by being part of a community. And these people can hold you accountable. And I highly recommend being part of something that you pay for because that's when you take it seriously and you start implementing the things that you're asked to do in these coaching settings. So I say it's sort of a con, but hey, you can cure it by getting some outside help. Another pro is once you hit that escape velocity, you start making money, your profits are paying for the business and you start getting some flow and you're growing. More of your dollars can be reinvested in growing the business because 100% it's up to you. You can take every cent and reinvest in the business to grow rapidly. One other pro I want to mention is that when you go to sell your company, if you look to exit at some point, five, 10 years down the road, it's a more attractive business to buy when there's not so many stakeholders involved. If a company wants to buy your business, they're going to have to buy out your investors. It's not a big deal, but it's more attractive for another company to buy out somebody who is a sole owner. They've seen you take your business to a certain level, they're like, hey, we want to take it to the next level, we're going to buy the business from you. It's a very straightforward deal. And again, come exit time, you get all the cash. Lastly, I touched on this, but it deals with the pace of growth. We talk about grow as fast as possible sometimes, but often as a business owner you want to grow at a certain pace. You don't want to grow so fast. You want to have some time to learn to grow. As an entrepreneur, you're happy with the size of your team right now you don't want to rapidly grow. You may not have that freedom to do that. If you're not bootstrapped. You have other people telling you what level of growth you need to do, what level of growth you should be at. Investors kind of putting pressure so it allows you to build the team you actually want rather than what you have to have. And at the end of the day it's your business and you should be able to control that. Some people don't want to have a hundred person team, they want to have a 30 person team and maybe a year or two down the line they're okay with moving from a 30 to a 50 to 100 person team. But at that moment, right now in their entrepreneurial journey, this is where they want to be. And they don't want to move past this until they feel ready. And you have that flexibility.

As a bootstrapper, you love what you do. You also love the idea of not doing it one day. But it's getting harder to know the best way to move into the future towards retirement. We hear about inflation, rate hikes, the changing market, gotta get the kids through college, build an emergency fund, and then there's retirement. Here's where Fidelity comes in. Fidelity can help you find clarity in saving for the future, even as your path and priorities evolve.

How?

Well, they'll help you create a free, personalized plan that adapts as your priorities change. They'll also show you what's called timely insights, small tips on ways to save and invest to help meet your goals. And you can monitor your plan so you stay on target. The future's coming and so's retirement. Fidelity can help you take it on your way. Learn more@fidelity.com future expenses charged by your investments and other costs and fees associated with trading or transacting in your account, apply Fidelity Brokerage Services Member nysesipc Thy.

Ticket lady, Jennifer of Coolidge.

Well, many thanks, good sir. Here is my Discover card.

They accept Discover at Renaissance Fairs?

Yeah, they do here. Discover is accepted at the places I love to shop. Geth with the times. With the times.

You're playing the loot.

Yeah.

And it sounds pretty good, right?

Discover is accepted at 99% of places that take credit cards nationwide, based on the February 2025 Nielsen report. So, Ricardo, I hope I've helped in today's Q and A Wednesday. My pros and cons of bootstrapping a business. There's a certain joy that comes with doing it on your own. Self funding and building your business to a successful level. Again, pulling yourself by your own bootstraps. Right. I have to say, it's a slower growth. It takes longer, in my experience, to bootstrap a business versus, you know, funding a business or having funding, having investors, having partners that are putting up money. But if you're loving what you're doing, then taking long is really not a big issue. You want to get to the point, of course, where you can pay yourself a good salary so you could do it full time. But if you have a successful business idea and implementation, that shouldn't be too long in your journey. I hope that helps, Ricardo. And if you're listening and you have a question, you want to ask for Q and A Wednesday, email me over at Omar@100-mba.net thank you so much for listening to today's show. Before I go, I want to leave you with this. When you're bootstrapping your business, it's so important to have a good handle on your finances. How much money you're making, how much money you're spending, your profit and loss sheet, your growth, your scale, all that stuff you need to know because it's the lifeline of your business. Money makes your business go. So make sure you have a good understanding and handle on it. Thank you so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

It's tax season, and at Lifelock, we know you're tired of numbers, but here's a big one you need to hear. Billions. That's the amount of money in refunds the IRS has flagged for possible identity fraud. Now here's another big number. 100 million. That's how many data points LifeLock monitors every second. If your identity is stolen, we'll fix it. Guaranteed. One last big number. Save up to 40% your first year. Visit lifelock.com specialoffer for the threats you can't control. Terms apply.