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BOOTSTRAPPING

Bootstrapping? Don't Bet It All
 

Sure, put some skin in the game when you're starting up--but not so much that it skews your ability to think rationally.

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Building a business with your own money has a romantic ring to it. After all, it saves you the heartache of having to hand over a big chunk of what you build to some investor. But bootstrapping asks a lot of you, the entrepreneur: For a while anyway, every dollar that comes your way must go into the company, not your pocket.

So if you're thinking about finally acting on that brilliant idea you've been sitting on, know this: bootstrapping is not for the undisciplined. It's not for the crazy gambler, either.

Let me explain. You need to have some skin in the game, but not so much that you aren't thinking rationally. If you're in a position where you can spare the money you're putting on the line, then trust me, your focus will be a whole lot different than if you're trying to make decisions involving your life's savings. In the latter scenario, you'll base your decisions on whether or not you can personally afford it instead of what's really necessary to move the company forward. 

When I decided to drop out of Harvard Business School in 2008, I knew I wasn't just taking one opportunity--I was closing the door on another. I probably gave up a lucrative job offer (and in the middle of a recession!), but it was a simple decision. When I came up with the idea for LearnVest--a financial planning and investment advice website--I asked myself, "When I'm 89 years old and I look back, what will I regret?"

I knew I would regret not giving LearnVest a chance.

Of course, being a math and personal finance geek, I also knew I had to be realistic and methodical. The success rate for first-time entrepreneurs is only 12 percent, and the majority of start-ups fail. Knowing this, I wasn't about to max out my credit cards and go into more debt than I could afford. I had a year's worth of emergency savings--about $75,000--stashed away from my Wall Street job. So when I started LearnVest, I gave myself a full year (and no more) to get the company off the ground. And if things didn't work out? Well, I would have blown my emergency savings but at least I wouldn't be on the street.

I started LearnVest in a shared, Ikea-furnished office space with another start-up called EasyBib to save on overhead costs. I essentially ran the company from my cell phone and my Gmail account until I got to the point where I needed to upgrade. 

Here's the thing: When you're starting a company, you want your judgment to be intact. If you're financially in trouble, you're bound to make some poor business decisions. A little bit of stress is a fine motivator when you're starting up, but too much can cloud your judgment, making it harder to think and plan for the long term. 

Extreme bootstrappers--if they succeed--make for a very dramatic entrepreneurial story that grabs headlines. But they are in the minority. Smart bootstrappers make smaller, methodical bets. Dropping out of business school during a recession was a gamble, sure. But I didn't gamble everything away, so I never put myself in a desperate situation. 

However you decide to fund your business, make sure that you're setting goals, both for your revenue and your customers. How many customers do you want to have? Do you have product that's actually worthwhile and that people are willing to pay for? 

Finally, don't ever scrimp on legal or financial advice. Those are the kinds of decisions you cannot afford to get wrong in the early days.

IMAGE: Getty
Last updated: Jul 11, 2013

ALEXA VON TOBEL is the founder and CEO of LearnVest.com, the financial-management and lifestyle website. She was recently selected as one of Fortune's Most Powerful Women Entrepreneurs and highlighted in Inc.’s 30 Under 30 list of cool young entrepreneurs.
@alexavontobel




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