Photo courtesy of iStockphoto, Galina Barskaya


A recent question raised on The Business of Software forum at the Joel on Software site emphasizes the importance of bootstrapping particularly for those looking at a product or service with modest or uncertain prospective returns.

Here the commenter wonders about the wisdom of seeking an independent software vendor, a one man/or woman operation, to develop a product for a distinct finance and accounting niche needed by many big companies.

Reasons for trying to bootstrap the software development over seeking outside funding or a large company to finance the idea include:
• The fact that the software may have limited shelf-life (3-5 years) before it's obsolete
• That it will be sold mainly to firms with which the entrepreneur has a personal relationship (there are no plans to mass market)
• That a previous experience with a larger firm turned sour when the company provided neither the money nor the push needed to clinch success

Big or small, a company, product or service may benefit from the bootstrap approach early because of several factors:
• Control. Whether your idea turns only a modest profit or nets millions, bootstrapping will prevent you or an outside investment partner from sinking more into a product than it can realistically return. By contrast, if your idea has the potential of making big money you won't give away the farm at the outset and will be in a better position to bargain with an established business model.
• Risk. More investment and less control also translate to greater risk. There is risk if you must leave your full-time job because an investor feels the size of their contribution justifies full-time management of a project well before it has been established as successful. There is risk of liability for large loans and other debt which might endanger other assets if the business fails.
• Reward. As suggested above, the greater the success of a business model developed before any funding is taken, the greater the negotiating power of the entrepreneur if and when the time comes to seek funding. Successful bootstrapping will maximize profit in the end.
• Growth. Probably most important for the general health of your venture, bootstrapping allows you to evaluate potential for expansion in the most real world terms available by measuring demand in the form of revenue

Don't take funding on the basis of projected profit. Instead use revenue to grow your business and gain a great insight into the strength of your market and how much room for growth there truly is for your product.