The statistics show that more British start-ups are shunning external finance and doing things their own way. But does a commitment to ‘bootstrapping’ always make for success?
Given the sheer volume of negative press around the subject of late, one could be forgiven for thinking that start-ups across the country are chomping at the bit for some external funding. There’s been no escaping the headlines about banks’ reluctance to finance the needs of small businesses, and the notion that an attempt to secure any kind of helping hand will ultimately prove fruitless. However, if a recent survey by online business network Enterprise Nation and accounting software provider Sage is anything to go by, such assertions should perhaps be taken with a pinch of salt.
The 10% Growth Survey reveals that 95% of start-ups and micro businesses are looking to grow over the next year. Nothing very revolutionary about that statistic, you may think. Yet, where things begin to take an interesting turn is in the fact that 54% of these small businesses intend to use working capital to help fund their growth, with a further 41% expecting to dip into their savings accounts for the necessary funds. Meanwhile, 68% of company founders explained that they had the security of another source of household income before they set up shop. And only 10% admitted that a lack of financial investment was holding them back from the growth that they are so eager to achieve.
These figures certainly paint an intriguing picture and provide some fairly concrete proof that a culture of ‘bootstrapping’ is becoming more prevalent in the UK’s small business arena. Nevertheless, whilst some may see this as a necessary response to the bleak economic conditions our entrepreneurs have been faced with since 2008, others are keen to regard it as an outwardly positive characteristic of Blighty’s burgeoning start-up community.
“Business owners are saying ‘we want to make sales, not get into debt, and we want to fund our expansion whilst staying in control’ which I think is a very good move,” says Emma Jones, founder of Enterprise Nation. “It has just become this very well-trodden path now that everybody says ‘businesses can’t get funding’, but it is really interesting that the majority of people aren’t looking for finance.”
Of course, one must be careful not to limit discussion of external funding to the banks and other repayable finance options. Many small business owners are also evading the attractions of an injection of cash from venture capital firms and angel investors. Whilst Jones accepts that such behaviour could engender somewhat gloomier perceptions of the business landscape, she believes it still shows there to be something quite unique about UK plc. “It could be construed that businesses are not investing for growth or they are not going out to get investment for growth,” she says. “The government may look at this and think business owners aren’t prepared to take risks anymore. But I would say it is a great thing because if you have got millions of people trying out things with small budgets, that creates a really entrepreneurial economy.”
Indeed, almost to lend credence to Jones’ claims, it is worth bearing in mind that there is far more to ‘bootstrapping’ a business than the avoidance of external assistance from the outset. The very concept of a ‘lean start-up’ is largely founded on a commitment to being as cost efficient as possible in the early stages. This means that any revenues can be reinvested into developing a product that fulfils consumer needs, ideally with a minimal chance of catastrophe along the way. “Bootstrapping forces you to be creative and realise how to get things done with limited resources,” says Daniel Callaghan, founder and managing director of freelance consultant marketplace MBA & Company. “It helps entrepreneurs to very quickly get a full view of how the market perceives their idea, which in turn helps them to refine the idea.”
And Callaghan can certainly speak from experience, having co-founded MBA & Company with £1,000 of his own money shortly after graduating from business school. He explains that this has ultimately stood him in good stead and prepared him for the challenges that lay ahead. “There will be lots of ups and downs in the life of a start-up,” he says. “Starting with a wealth of resources at your fingertips limits that view, whereas starting with limited resources and having to work out how to overcome those obstacles is highly advantageous for the next time an obstacle appears.”
Launching an online venture can make things a little easier in this regard, owing largely to the low cost of setting up a basic website to get things off the ground. It also opens the door to utilising cost-effective marketing channels, one of which has become particularly prevalent in the last decade. “Whilst using social media is time-consuming, it is also free,” says Clare Whalley, managing director of business coaching firm Meta4. “So you can definitely be making money in the early stages.”
In this sense then, bootstrapping is very much a case of working within your means and only taking money when it is absolutely essential. “A lot of companies will take on external funding, they will get fancy offices, company cars and mobile phones, but they haven’t got any customers,” adds Anna Bastek, CEO of language services provider Wolfestone. “For us, the focus was on getting customers because in my eyes, having a business doesn’t mean having a flashy office.”
More often than not of course, taking the lean approach will be as much a necessity as it is a conscious decision to keep strict control of the purse strings. This holds true for Bastek, who moved to the UK from Poland and initially funded Wolfestone with the salary from her full-time job. Suffice to say, this led to many a sleepless night, but she is now looking back on seven years of solid growth, a place among Wales’ Fast Growth 50 companies and a couple of acquisitions in the pipeline.
And whilst Bastek is on the verge of securing a loan to help fund these acquisitions, a commitment to bootstrapping has left her debt-free and in full control of her business. The latter, it would seem, is the overarching benefit of such an approach, but the crux of the bootstrapping debate is essentially whether it is a viable ‘long-term’ strategy and tool for rapid, potentially global, growth. “I think it does absolutely at the end of day come down to what the business owner wants from their business,” says Jones. “Do they want to retain full control or are they happy to relinquish some of that in exchange for thinking ‘we will grow quicker if we bring that money into the business?’”
For an entrepreneur with their eyes on international reach, the latter will find its way onto the agenda eventually. “It is extremely rare that you can build a brand off the back of bootstrapping,” claims Angus Elphinstone, CEO of delivery comparison website AnyVan.com. “You can get to a point but sometimes investment exaggerates any growth. It makes it a hell of a lot quicker and I think for a company to bootstrap all the way through its term, it is dangerous because that will open the door for its competitors.”
Regardless, there can be little doubt that successfully running a business on a shoestring can put an entrepreneur in a strong position when investment becomes a necessity. “We took on outside investment because of the speed at which we wanted to grow the organisation and the extra credibility that it can give to you,” explains Callaghan. “The fact that we were able to operate on a lean model and be as professional with resources as we were only showed a good testament to our personal and professional capabilities.”
The statistics certainly speak for themselves. And in some ways it’s hard to blame our aspiring entrepreneurs for wanting to do things their own way from the start. That’s the very beauty of entrepreneurship at the end of the day, isn’t it?