Some people just love regular 9-to-5 jobs and feel good without too much pressure on their backs. But there are many other professionals who can’t stand the supervision and have enough energy to run their own projects. If you fall into the latter category, you are probably thinking about launching a startup.
This type of entrepreneurship gives you the chance to manage the business on your own, especially in a bootstrapped startup. Although more than 80% of startups are self-funded, more than half of them fail in the first four years. Bearing this in mind, you should think carefully about the risks before launching a bootstrapped startup.
The biggest risks of bootstrapped startups
Millions of startups are founded each month but still, a lot of entrepreneurs don’t really know the difference between the bootstrapped and the funded startup. Experts for small business operations at Aussiewritings explained it simply: “While funded startups search for external financial support, bootstrapping means that you completely rely on your own, self-accumulated budget.”
This is exactly the crucial point of differentiation between the two and each option brings certain risks with it. In this article, I will explain you the 8 biggest risks of bootstrapped startupers.
-
Financial risk
Running out of money is the basic concern for the vast majority of bootstrapped startups because launching a product demands a lot of time, testing, and investments. There is a huge gap between the initial phase of the project and ROI, which is something that most bootstrappers cannot handle.
Besides the workforce expenses, there are also costs related to administrative procedures, maintenance of assets, and operational risks. All this can drastically increase the projected budget. In such circumstances, only well-prepared and financially stable startups can overcome the problem and continue operations as planned.
-
Time management
Bootstrapped companies usually consist of a small number of professionals who have to do everything on their own. There is no outsourcing or numerous employees with specific duties – bootstrappers are simply all-around players. It allows them to learn the business in its entiretyand become experts in various fields.
But at the same time, it also means that scheduling will be a big burden for everyone. Time management becomes a major issue if you can’t dedicate completely to your primary job, while the odds of making a mistake increase accordingly.
-
Staff risks
Even if you and your small crew follow the calendar of activities and handle things on time, it is still hard to expect that everything will go smoothly unless you function as a good team. That’s why you need to hire only the most talented professionals who will also match your personal qualities and expectations.
If you do this, you won’t have to waste your time on conflict management and there’ll be no need to explain duties over and over again. But this is easier said than done, which is why recent studies proved that bootstrapped startups with two ownersactually make much better results.
-
Small market
Creative ideas are essential for the success of a bootstrapped startup. But it’s not easy to find one. Thinking about the product with the biggest commercial potential, many startupers come up with interesting but narrowly focused solutions, which increases the risk of failure.
A recent survey revealed that more than 40% of startups fail due to lack of a market needed for their products. This is a huge risk for each new company and you should be aware that you don’t only need to target audience – you also need to find enough of it.
-
Poor execution
A lot of companies fail because they cannot produce a valuable product. This is especially the case with bootstrapped startups. Given the fact that they are self-funded and short on manpower, this type of business is often incapable of designing products the way they wanted.
If you want to avoid this risk, you have to plan thoroughly and leave enough time for each stage of product design, placement, and promotion. This is the only way to eliminate potential shortcomings and deliver an item that really has the power to reach the target audience.
-
Compatibility
Most startupers sell IT products or services and offer new software, apps, and programs. In order to succeed, you need to respect the principle of compatibility. Namely, you have to make sure that your product is compatible with the technology used by the targeted clients.
For instance, you may have designed the best software for Linux but it cannot fulfill the needs of Microsoft Windows. In this example, you minimized the growth potential of your product and neglected the fact that most clients use the latter operating system.
-
Short life cycle
Each product has its own lifecycle: from initial phase, overgrowth and maturity, all the way to decline. The longer it lasts, the more profit it can get you. However, some startupers make short-lived products which cannot support the overall amount of investments. Avoid this mistake as it will ruin your efforts and leave you bankrupt.
-
Success risk
Young entrepreneurs dream of big success, hoping to see their businesses skyrocketing shortly after product launch. However, this is also a trap for many bootstrappers as they don’t know how to deal with new circumstances.
They usually enter premature scaling and take more responsibilities than they can handle. Don’t allow yourself to make the same mistake – be careful and let your company grow gradually. Avoid long shots and build each segment of the business equally and simultaneously.
Conclusion
Each startup has to face a fair portion of business risks. However, it seems like the bootstrapped startups have more issues to deal with than their funded counterparts. In this article, I gave you an overview of the biggest problems that you could encounter while bootstrapping. Keep them in mind and let us know in comments which type of startup you prefer.
Guest author: Olivia is a young journalist who is passionate about topics of career, business and self-development. She constantly tries to learn something new and share this experience on different websites. Connect with her on Facebook and Twitter.
Pingback: 7 Ways to Motivate Yourself to Try New Things with Your Business - StartUp Mindset