Bootstrap

Loading the player...

What is 'Bootstrap'

Bootstrap is a situation in which an entrepreneur starts a company with little capital. An individual is said to be boot strapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.

Compared to using venture capital, boot strapping can be beneficial, as the entrepreneur is able to maintain control over all decisions. On the downside, however, this form of financing may place unnecessary financial risk on the entrepreneur. Furthermore, boot strapping may not provide enough investment for the company to become successful at a reasonable rate.

BREAKING DOWN 'Bootstrap'

The term itself originates from the phrase "pulling oneself up by one's bootstraps," and professionals who engage in bootstrapping are known as bootstrappers. These individuals typically rely on personal savings and the earliest instances of revenue to begin funding their own startup companies. This contrasts with other entrepreneurial actions, which may include contacting external investors and other business professionals to begin funding their operations.

Though not as quick in turning profits, bootstrapping is a steady way to begin compiling revenue and to support future investments by providing the business with a safety net for long-term cost management. Bootstrapping provides professionals with the peace of mind they need to focus on building relations with customers and other professionals.

Because the business does not have to rely on other sources of funding, initial business owners do not have to worry about diluting ownership between investors. Entrepreneurs do not need to issue equity, and they can focus debt on personal sources. Bootstrapping allows business owners to experiment with their brand more, as there is not as much pressure for them to get their product right the first time. With personal startup funds, they can experiment with focus groups until they are satisfied with the results of their venture. However, this also increases the degree of risk for the starter, because they may need to micromanage their source of income as well as their business venture.

One such example of a successfully bootstrapped business is EDS. Ross Perot first started EDS in 1962 with $1,000 he saved up in personal funds from previous employment arrangements. Through persistence and careful networking, he turned his small startup operation into a multi-billion-dollar company. Studies show that more than 80% of new startup operations are funded through the founders' personal finances. The recorded median in start-up capital is reported at approximately $10,000.

RELATED TERMS
  1. Bootstrapping

    1. A procedure used to calculate the zero-coupon yield curve ...
  2. Boot

    Cash or other property added to an exchange or other transaction ...
  3. Strap

    An options strategy created by being long in one put and two ...
  4. Entrepreneur

    An individual who, rather than working as an employee, runs a ...
  5. Golden Boot

    An inducement or incentive for an older worker to "voluntarily" ...
  6. Limited Entrepreneur

    A person who is involved in a limited liability company but does ...
Related Articles
  1. Options & Futures

    Strap Options: A Market Neutral Bullish Strategy

    Strap Options are a market neutral trading strategy with profit potential on either side price movement, and with a "bullish" skew.
  2. Entrepreneurship

    The 5 Skills Every Entrepreneur Needs

    Understand what an entrepreneur is and the type of risk an entrepreneur faces. Learn about the five skills necessary to become a successful entrepreneur.
  3. Professionals

    Who Counts as an Entrepreneur?

    An entrepreneur is a person who starts a new business or organization, taking some personal financial risk to do so. He or she may quit a secure job to devote time to starting the new business, ...
  4. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  5. Entrepreneurship

    5 Steps to Become an Entrepreneur

    Understand what it takes to become an entrepreneur, and learn about five steps that can help someone become an entrepreneur and build a successful business.
  6. Entrepreneurship

    10 Characteristics of Successful Entrepreneurs

    Being a successful entrepreneurs requires more than just an idea or a lot of money. Here are ten things that set successful entrepreneurs apart.
  7. Entrepreneurship

    Why Entrepreneurs Are Important for the Economy

    This article discusses the importance of entrepreneurs and their important value-add to the economy of a state.
  8. Term

    How Entrepreneurs Benefit the Economy

    Why are entrepreneurs important for the economy?
  9. Entrepreneurship

    5 Good Habits Every Entrepreneur Needs

    Understand who an entrepreneur is and what an entrepreneur does. Learn about the 5 good habits that every entrepreneur should have.
  10. Professionals

    Liabilities & Boot

    Liabilities & Boot
RELATED FAQS
  1. How does an entrepreneur help the economy?

    Find out about how entrepreneurs play a fundamental role in capitalist economies by helping to coordinate resources and bearing ... Read Answer >>
  2. What risks does an entrepreneur face?

    Find out if you have what it takes to overcome the challenges and risks associated with starting a business and becoming ... Read Answer >>
  3. What resources are available to an entrepreneur to raise capital?

    Learn how entrepreneurs can use various resources to raise capital and how each is beneficial throughout the different phases ... Read Answer >>
  4. How does an entrepreneur pay taxes?

    Find out what kind of impact tax policy can have on entrepreneurship in the United States and why all economic agents have ... Read Answer >>
  5. What is needed to be a successful entrepreneur?

    Discover how successful entrepreneurs succeed through passion, motivation and accepting failure. Learn about the qualities ... Read Answer >>
  6. What happens when someone is given the golden boot?

    In business, the term "golden boot" describes the package used to convince older workers to take early retirement. Forcing ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center