What is Bootstrapping?

by Craig Anthony

1 min read

In the context of small business, bootstrapping occurs when a new business is started with very little money, or more commonly, no money. The key idea behind bootstrapping is that the entrepreneur begins the company with little resources and attempts to maintain and grow the company by using only his or her personal finances and operating revenue from the company itself. Bootstrapping is most common when a concept has not been proven, thus eliminating the chance of obtaining an investment from angel investors or venture capitalists, or a bank loan. For example, assume an entrepreneur calculates that his new business idea will cost $3,000 per month to build and operate. Initially, he uses $3,000 of his own cash to run the business during the first month. Perhaps he gains $1,000 of sales during the month. He can then use the revenue plus $2,000 of his own money to operate in month two. This pattern of using revenues and personal capital continues until the business can operate solely on customer revenue. This is precisely how bootstrapping operates in the small business world. It should also be noted that bootstrapping can refer to a statistical concept where any metric or test is based on random sampling with replacement.

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