3 Reasons Why Bootstrapping Beats Crowdfunding

(DGIwire) — When it comes to raising money for a brand new startup, which of the following makes more sense: Initiating a crowdfunding campaign or bootstrapping? As a long-time serial entrepreneur who has built several successful companies from the ground up, Marty Schultz has had plenty of time to study both methods—and as he explained in a recent article he wrote for SmallBizTechnology.com, bootstrapping appears to him to be the far superior option. Here are three reasons why:

  • Crowdfunding is impersonal. Want a crowdfunding campaign? Join the (literal) crowd. Although it might have made sense even five years ago, starting a campaign in 2019 means getting in a long line. For example, Kickstarter, according to its own statistics, has more than 432,000 launched projects. Meanwhile, Indiegogo has launchedmore than 800,000 campaigns as a combination of not-for-profit causes and startup businesses. Relying on contributions from a wide swath of the population is a shot in the dark compared with the way bootstrapping has traditionally worked: namely, reaching out and contacting a targeted list of potential partners and customers. This is obviously a much more personal approach that consequently may result in a more successful financial outcome.
  • Only a fraction of crowdfunded projects get funded. Looking once again at Kickstarter’s own statistics, percentage-wise, nearly two-thirds were not successfully funded, and only about one percent raised more than $100,000. Those are not great odds, says Schultz. Although no one can predict the outcome of bootstrapping, an entrepreneur at least goes into it knowing that those whom they have contacted have previously shown an interest in the same goals that are driving their vision. There is thus a higher likelihood of success with the latter approach. And even if those who are contacted are unwilling or unable to contribute directly to building finances, they may be able to give new perspectives or advice that allows the entrepreneur to pivot their approach—or even the nature of the goods and services they’re planning to offer—that could lead to a better potential for getting funded.
  • The cost to get crowdfunded is high. To be successful on Kickstarter, a really compelling video and a social media campaign are needed to get people interested. That would cost between $10,000 and $20,000 to create. The same challenges apply for Indiegogo—it is expensive to create a good marketing campaign and your success is based on luck. With both services, one is basically using a shotgun approach and hoping for the best. All the eggs—up to $20,000 worth—are being put into a promotional campaign in the hopes that it will generate far more than that, even though the odds are stacked against it. It’s a bit like launching an app for the iPhone and hoping it will be wildly successful—even though there are already two million apps available for someone to download. Schultz says a startup can only be successful by targeting potential customers with rifle-like accuracy and putting all the time and money into working with a handful of people who truly need what is being developed. This is the substantial advantage that bootstrapping holds over these crowdfunding techniques.

“The head of a new company may choose to go any route they wish to raise money—but experience has shown that bootstrapping is the far superior option compared to crowdfunding in the long run,” Schultz adds.