Bootstrapping: Definition, Method, Techniques & Example

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  • 0:03 Definition of Bootstrapping
  • 0:45 Bootstrapping Methods…
  • 2:48 Lesson Summary
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Lesson Transcript
Instructor: Kimberly Winston

Kimberly has a MBA in Logistics & Supply Chain Management

Entrepreneurs are often forced to seek creative methods of funding their start-ups. In this lesson, you will learn about a financing option called bootstrapping and how it is used.

Definition of Bootstrapping

William wanted to start a small business but had limited resources. After careful consideration, he decided that bootstrapping was his best option for starting a business. Bootstrapping is the utilization of limited resources to grow or start a business. It entails finding ways to efficiently utilize limited resources to lessen the impact of not having access to formal external resources. Often, small business owners are unable to obtain financing from formal sources, such as bank financing. Small business owners are forced to utilize the resources that they have to finance their business. Bootstrapping is referred to as an informal or creative source of financing a business.

Bootstrapping Methods & Techniques

There are two basic methods of bootstrapping that are interrelated:

  • Efficiently utilizing the resources you have
  • Acquiring new resources

They are interrelated because each method helps to achieve the other method. Efficiently utilizing resources may assist in acquiring new resources, and the reverse is true.

William knew that there were many different techniques for creatively financing his business through the use of bootstrapping. He needed to use bootstrapping techniques that would help him to both efficiently utilize the resources that he had and acquire new resources. He compiled a list of friends and family who might be interested in giving him a personal loan to start his business. He also considered the benefits of trading goods or services and bartering as a way to lease equipment that a friend of his family owned. Leasing equipment instead of buying, he knew, was a form of bootstrapping. Other techniques that he considered were using credit cards to purchase necessary goods, getting a home equity loan, the sale of real estate, and borrowing money from a 401K or an insurance policy.

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