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Bootstrapping vs. Seeking External Financing When Setting Up an E-Commerce Business
Bootstrapping vs. Seeking External Financing When Setting Up an E-Commerce Business

Bootstrapping vs. Seeking External Financing When Setting Up an E-Commerce Business

In the 19th century, “pulling yourself by your bootstraps” actually meant to do something absurd, usually in the name of self-reliance. Today, however, the phrase has evolved to mean quite something else—self-funding in the world of entrepreneurship.

Still, while bootstrapping is now overwhelmingly understood in a positive context, it heavily implies a challenging road ahead for entrepreneurs. Many ventures, especially those reliant on technology, tend to require substantial capital, and as a result, you will see many serial entrepreneurs and business academics alike argue in favor of external funding, especially in today’s e-commerce environment. 

In the Philippines, growing incomes and access to capital from formal lending institutions have made both options increasingly viable for nascent online entrepreneurs, making it difficult to discern the right path to success. Let’s briefly look at these two options and find out whether outside funding or bootstrapping is the right choice for your emerging online venture.

1. Technological Access

Bootstrapping

The tech gap between bootstrappers and externally funded businesses is much smaller than it once was. Just a few years ago, setting up an e-commerce website often incurred significant launch and upkeep costs. Even something as fundamental as an online payment system could cost hundreds of thousands of pesos to set up. Now, you can rely on social media to potentially reach and convert millions of customers for free. 

You can even use link payment tools like Payment Links from Maya Business to seamlessly accept card, QR Ph, and digital wallet payments over social media and messaging apps. This helpful tool lets you send a hassle-free payment link over popular apps (including Facebook Messenger, Instagram, Viber, WhatsApp, and Telegram) that customers can use to access a secure payment gateway. With these tools, you can delay setting up a website or even go without one, if you so choose.

External Financing

External financing can provide you with the funds to develop a comprehensive e-commerce website as well as other critical channels such as social media pages and offline stores. The extra funds can also be used to provide your online visitors a highly curated, tech-enabled experience, potentially setting the stage for consistent repeat sales and sustained growth across multiple channels.

Moreover, externally funded ventures can still employ the cash-saving strategies adopted by bootstrappers. You can still offer visitors a link for payment on your social media pages and website in addition to the advanced features enabled by external funding.

2. Access to Capital

Bootstrapping

Except for a lucky minority, bootstrappers will face serious challenges in accessing enough capital to make all aspects of their online business competitive. If you choose to bootstrap, some sacrifices will have to be made in terms of the scope and scale of your initial operations.

External Financing

If you’re eyeing rapid growth and market dominance, seeking external financing is an attractive option. More available cash means more funds to spend on a winning website, R&D, marketing, and other critical operations. However, this benefit would only apply if the funding sources are not restricted in their use.

3. Financial Risk

Bootstrapping

As a bootstrapper, all financial risks associated with running your business fall on your shoulders. Fortunately, this risk comes with the ability to make decisions on your own without having to answer to investors or to whoever writes the checks. If you value quick decision-making and the freedom to chart your own path, bootstrapping may be your best option.

External Financing

Relatively few entrepreneurs can absorb massive financial risks by themselves, especially in the Philippine setting. A typical ambitious employee can spend a decade or more saving up to have the capital needed to launch a credible business, and, given this circumstance, many entrepreneurs would prefer to spread their financial risk.

4. Long-Term Growth Prospects

Bootstrapping

If you want to prioritize establishing a solid foundation over several years, bootstrapping tends to offer a more stable growth trajectory. While the initial steps may be smaller, the personal approach often allows for stronger business relationships and sustainable expansion over time.

External Financing

With external financing, your online business can have a better chance of seizing fleeting market opportunities and experiencing faster growth. The drawback of this approach, however, is that it may also introduce complexities and volatility that may endanger your venture’s long-term sustainability.

5. Cost Considerations

Bootstrapping

The limited capital associated with bootstrapping encourages a focus on cost-effectiveness and efficient resource utilization. As a bootstrapper, you must make difficult decisions, often sacrificing opportunities to protect and maximize your available resources.

External Financing

While external financing can provide you with funds and the room to breathe, it comes at a cost–either through equity or interest payments. If you take any external funding, be sure to evaluate the financial implications and the impact on your venture’s profitability, over time.

Coming to a Capital Crossroads

Whether you’re building a traditional sari-sari store or building a modern e-commerce operation, getting your startup funds in place is likely to be a significant challenge. You can have a solid concept and the best people under you but, without enough funding, your business venture will not get off the ground.

Fortunately, the current Philippine economic environment has made both external and self-funding viable options for a wider array of businesses. Both options have their pros and cons, so it can be confusing to choose a funding type that will bring your business lasting success. To ensure the best results, make sure that you choose funding that closely aligns with your values as well as your long-term goals for your online business.

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About The Author

Raymund Ravanera is an accomplished and experienced graphic designer with almost 20 years of creative expertise working in the graphic design industry. He loves the latest gadgets, food and movies. Currently, he owns and manages megabites.com.ph, an online technology and lifestyle blog since 2015.

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