Bootstrapping Business Start-Ups: Entrepreneurship Literature, Textbooks, and Teaching Practices versus Current Business Practices?

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ABSTRACT

Existing scholarly research on bootstrapping is limited, despite the widespread use of bootstrapping strategies in actual practice among start-up entrepreneurs. Popular academic textbooks used in college and university entrepreneurship courses seldom provide in-depth coverage of bootstrapping; many devote just a few paragraphs or pages to the subject. In sharp contrast to the coverage given in these textbooks, bootstrapping in its various forms has been advocated in, and documented by, the popular business press as a widespread phenomenon. Given that textbooks in any established discipline often draw heavily upon that discipline's existing body of literature, it is not surprising that a lack of formal research by members of the entrepreneurship scholarly community reflects the possibility that textbooks, and courses (if they are based on those textbooks), may be out-of-step with entrepreneurial reality.

INTRODUCTION

Bootstrapping is entrepreneurship in its purest form. It is the transformation of human capital into financial capital. The overwhelming majority of entrepreneurial companies are financed through this highly creative process (Freear, Sohl & Wetzel, 1995), which typically involves the use personal savings, credit-card debt (Cole, Lahm, Little & Seipel 2005), loans from friends and family and other nontraditional forms of capital.

The entrepreneurship academic community has not fully recognized the effect of bootstrapping on entrepreneurial behavior and organizational success (or failure) through formal research. The above positioning statement is supported by the recent observations of other scholars such as Van Auken, (2005) who observed: "Although bootstrap financing commonly is used and is an important source of capital, few.... studies comprehensively have examined the role of bootstrap financing in small firm financing" (p. 94). Winborg and Landstrom (2001) similarly observed that "bootstrapping is a phenomenon which deserves more attention in future research on small business finance" (p. 235).

We also submit a logical chain-of-events argument that suggests a lack of coverage in the literature, which also seems to be reflected in our review of popular academic textbooks, may impact both teaching (if course content is anchored to assigned textbooks) and students' views about the realities that they will face as nascent entrepreneurs.

Bhide (1 992) suggested that the success of an enterprise hinges on the ability of its owner(s) to create and leverage financial resources. This paper discusses methods which broadly address bootstrapping options such as bootstrapping product development, bootstrapping business development, bootstrapping to minimize the need for (outside) capital financing, and bootstrapping to minimize the need for capital; these have been previously identified by Freear, Sohl, and Wetzel (1995) and Winborg and Landstrom (2001). The aforementioned methods generally involve the acquisition and control of resources (both tangible and intangible) through creative means. Control also encompasses the efficient uses of those resources to finance the enterprise for growth.

REVIEW OF EXISTING LITERATURE ON BOOTSTRAPPING

A series of searches of the academic literature revealed that rigorous study of bootstrapping, as a serious variable in entrepreneurial success has been minimal. Besides the conclusions mentioned above from prior researchers who have pointed to a dearth of research, our search attempts conducted on databases used by Proquest also demonstrated the scarcity of scholarly research on bootstrapping. With parameters for the searches set to select only scholarly journal articles (with full-text availability), the low number of articles in search results from those Proquest databases suggested an opportunity for future studies of bootstrapping as an antecedent to entrepreneurial success or failure.

Subsequent search efforts resulting from a broader Internet search encompassing the business press, practitioner journals, and magazines revealed that the term, "bootstrapping" (which has different meanings in different contexts; homonymie variations may apply to computing, statistical methods, and meanings other than that which pertained to our interest in bootstrapping business start-ups), is often commingled with numerous subjects in search results. …