Says Entrepreneur Magazine, boasting about how you raised millions of dollars in venture capital to finance your startup is so 1990s. Lose the champagne-and-caviar venture capitalists – these days, it’s way cooler to bootstrap your business.

What is bootstrapping?

Bootstrapping is described as the business model of the 21st century. To bootstrap a business is to start a business without external help or capital. Bootstrapping entrepreneurs put aside a finite sum of their own money to kick things off, and then fund the development of the business with internal cash flow. With cash being in short supply, bootstrappers need to focus on keeping expenses low and coming up with innovative, cost-effective ways to implement sales and marketing strategies.

Why bootstrapping?

It’s hard to get a bank loan to start a small business these days. Since the start of the credit crunch, financial institutions have tightened up their lending requirements considerably. In fact, the US Small Business Association reports that a whopping 93% of all startups requesting finance in the world’s largest economy are turned down! In South Africa, the story is much the same. If you’re lucky enough to even get a loan nowadays, entrepreneurs are required to put up at least half of the investment value themselves, and offer banks greater collateral.

So what’s an entrepreneur to do? Advises the Old Mutual Entrepreneur’s Guide, you should run your business as long as you can on your own (i.e. without external funding) to increase your leverage and equity. While it may take longer to become profitable initially, bootstrapping your business lowers business risk considerably, leading to greater chance of success.

Who’s bootstrapping?

Famous bootstrapping entrepreneurs include:

  • Craig Newmark – Newmark bootstrapped his US-based classifieds website, craigslist.org. His startup began as a list of ‘cool San Francisco events’ distributed to friends via email. Soon, people were calling it Craig’s List, and wanted to advertise in it. Craigslist now generates in excess of $55 million a year.
  • Chris Lighty – This Bronx-born entrepreneur started out carrying music record crates for a record company, and went on to bootstrap his own company, Violator Management and Records. Stars signed to his now-famous hip hop label include Mariah Carey, Busta Rhymes, LL Cool J, P Diddy and 50 Cent.
  • Anita Roddick – Way before bootstrapping was trendy, The Body Shop founder opened her first store on a shoestring budget and went on to establish an international cosmetics empire worth $16 billion.