Why Bootstrapping Can Limit Your Growth

 

When beginning something new in your business, it’s fun to look back on the companies that have stood  the test of time.  What’s our number one?  Well, despite a few well-financed chicken-focused start-ups, the mounting  pressure to reduce our dependence on meat, and our growing addiction to fancy  coffee, McDonald’s has managed to thrive. In 2020 year McDonalds celebrated its  80th anniversary with a market capitalization of around $150 billion.  That’s up roughly  10% over 2019. 

McDonald’s started when Maurice and Richard (Mac and Dick) were invited by their  father, Patrick McDonald, to help flip burgers at his diner.  Originally called the Airdrome, the brothers rebranded in 1940 as their namesake. 

The two spent almost ten years tinkering with their business before they  introduced the “Speedee Service System.”  This system employed techniques that were pulled from the factory assembly line to serve customers quickly. 

The McDonald clan ran their single-location hamburger stand for almost 20 years  before Ray Kroc came along.  He asked to franchise the concept.  Mac and Dick had the  skills to create a successful one-location business, but it was Kroc who took their  modest restaurant and made it world famous. 

What Got You Here Won’t Get You There 

Three skills are essential to survival as a start-up that you must eventually “unlearn” to grow a valuable business.  While these talents are prerequisites for getting a business off  the ground, they become a liability as time goes on. 

 

1. Flexibility 

In the early days when cash is scarce, you need to be flexible. Instead of hiring full time employees, you may need to subcontract work to a partner. This arrangement  works well as you pay subcontractors only when you have work, and they pay their expenses. 

You also stay flexible when dealing with customers. If you’re just starting up, you’re  likely not in a position to dictate to your prospects.  Instead, you listen carefully and adjust  as necessary to suit their needs.

 

 

Rather than setting up a physical location, you may create a makeshift office at home or working out of a coffee shop. 

All of this bootstrapping allows you to get your business off the ground on a  shoestring budget. The problem is that rather than creating more value, being too flexible becomes a liability.

Your contract employees may have other clients.  This means they can’t be at your beck and call when you need them. Your customers may start to ask for so much  customization that the only person in your company with the technical skills to  fulfill their special requests is you. And, eventually, a customer will want to see where you work.  Unfortunately, they may think less of you if your office is your car. Flexibility is a prerequisite in the beginning, but it actually becomes a liability as you grow. 

2. Thrift 

If you’re self-financing your business, you have no choice but to make it profitable  from day one. If it doesn’t make you money today, you don’t do it. 

This discipline of getting an instant return on cash invested allows us to get a  business off the ground. Still, the problem with fixating on immediate profit is that it can undermine your ability to grow.