The concept of bootstrapping a startup is a decently popular one these days.  Many entrepreneurs have seen their peers successfully take a concept to market with very little initial capital investment and with wise capital management, spending only when absolutely necessary.  Those who have bootstrapped their startup successfully and effectively are generally people who are able to wear multiple hats (design, marketing, sales, customer service) and wear them well, or with at least some level of basic knowledge and experience.

Bootstrapping a startup makes perfect sense for a number of reasons.  It allows the founders to maintain a larger amount of control in the long run.  Bootstrapping also allows the founders to grow and expand at a rate that is comfortable to them.  Despite these advantages bootstrapping can, at times, hold a company back while potential competitors are able to surge ahead thanks to an infusion of capital from an outside source.  In instances like these, it is better not to bootstrap if:

Cash is the main factor in hindering growth. A startup business can have all of the experience and expertise in the world, yet without ample cash will just not succeed.  This situation generally happens in businesses and markets where the distribution channel needed is very large.  New businesses dealing with the manufacturing and distribution of tangible goods often require large amounts of capital to even make it to market.  It is definitely not time to bootstrap when an order outnumbers production capacity.  Having orders or sales in-hand that your startup business will be unable to follow through on without an infusion of cash is something an investor would almost gladly be willing to fund as it minimizes their risk by allowing them to know that there is indeed a market that wants and values what your startup provides.

You or your team has a proven record of success. When Twitter took on its initial round of VC money it was almost assuredly not because they had such a brilliant service that was a virtual money factory.  It is highly possible, and in fact probable, that many VC firms backed the group because of their previous success with blogger.  The leadership at Twitter already knew what they were doing and have proven that they know how to develop and lead an innovative technology company.  As you build your reputation as an entrepreneur it will no doubt become a bit easier to find some capital as well as talent (human capital), assuming your reputation is a positive one.

You are uncomfortable eventually losing a controlling interest in your company. By taking on funding from outside sources you are essentially selling little bits of your company.  While not all angels, VCs, or other investors will be as harsh as our friends from the Shark Tank who prefer to justify why they should take 51% of your company, they will want a slice of the pie.  While, as a founder, your stake in the company may continue to be the largest, you will no longer have full control as your investors will want a say in how the business should be run in an effort to maximize any and all returns on their investment.

Bootstrapping has allowed many companies to manage their growth and scale as the market needs/allows.  Taking on capital from outside sources may inevitably be necessary, and will perhaps minimize your personal risk.  However, it may end up leaving you less free to take the company in the exact direction you want to.  For further information on bootstrapping, check out Seth Godin’s Bootstrapper’s Bible – price appropriately at $0.