Another important outcome of effective bootstrapping is that it increases the income and wealth that entrepreneurs can realize from their businesses over time. Generally business owners get paid only after all of the expenses have been covered. Therefore, the ability for an entrepreneur to receive income from the business is a function of its cash flow. Since bootstrapping can improve cash flow from the business it is a means of ensuring personal income for the entrepreneur. By improving cash flow, bootstrapping increases the amount of cash the entrepreneur can take out as personal income from the business.
Additionally, much of the wealth that an entrepreneur is able to realize from the business is based on its valuation at the time the business is sold. The value of a business is based on the expected cash flow that the buyer believes the business can generate into the future. The most common valuation method for privately owned businesses is based on a multiple of the free cash flow the business generates. The multiple is based on several factors including historic growth of the venture, strength of the industry, strategic advantages of the company, and specific industry valuation standards. The degree to which the entrepreneur is able to improve cash flow through bootstrapping techniques the higher the value that can be created for the business. Bootstrapping is therefore not only good for the health of the business, but also personally good for the entrepreneur in terms of income and wealth.
As a former entrepreneur now completely burned out and working for the government, I agree that everything that the business owner can do to add income and value to the business is good with a couple of caveats:
1. Work with, not against, your strengths.
You may say “Great. Now explain what the hell you mean by THAT.” Well, look at yourself as you would a prospective employee. What are your strengths? What are your weaknesses? (Oh, you want to tell me you have no weaknesses? You LIE like a rug.)
What are the things that you can do you do better than (almost) anybody else for your business? Some people have specific skills in inspiring and leading people, others have phenomenal sales successes without ever having the benefit of a marketing degree, while others have an ability to keep an eye firmly on the bottom line and the company solvent.
All those skills are essential, but they rarely come in one person. All I’m sayin’ is that if you have, say, unparalleled technical knowledge for your particular product and love sharing it with people that might have a need for it but hate, despise, and procrastinate on doing the accounting, you would be far better off paying somebody to take that chore off your hands.
2. Being indispensable can be a bad thing.
“But how is this possible?” you may whine. “Being indispensable means that nobody can take my place!”
Congratulations on that, Einstein. So what happens if you become disabled, die, or wish to sell your company? Less drastic, what about if you want to take a relaxing vacation with your significant other? What if you get called for jury duty for a long trial? If you are truly indispensable, you won’t be able to. Take it from me, whose days away from the grindstone for 25+ years consisted of 3-day weekends, being indispensable sucks.