Bootstrapping women achieve faster growth

2006

Women entrepreneurs who are creative about the way they raise money for their businesses and take advantage of every financing opportunity going are more likely to reach the rapid growth stage in their businesses, a new study has found.

A study among 88 female entrepreneurs by researchers from Babson College, Wake Forest University and Harvard Business School found that in order to attract external investors for future growth, women must first prove their business concepts, meet early stage milestones, and demonstrate the value of their businesses.

To do this, female entrepreneurs adopt a 'bootstrapping' strategy – raising funds through creative ingenuity, cutting costs, securing resources at no cost and building knowledge and human resources to speed business development.

The research, published in Venture Capital Journal, also found that women chose specific finance strategies depending on where they are in the business cycle.

But those entrepreneurs who learn to bootstrap their businesses effectively in the early stages gain the most legitimacy with investors.

Emergent stage businesses reduce capital outlays by cutting labour costs rather than applying bootstrap activities to speed up product and business development.

Entrepreneurs in the rapid growth stage reduce cost of operations to trim capital expenditures.

Rapid growth businesses, meanwhile, use both classic financial and bootstrapping strategies to position their ventures for growth.

Yet entrepreneurs who continue to use bootstrapping even once they have received equity funding are more likely to reach rapid growth stage, the research found.

Babson's University's Patricia Greene, one of the study's authors, said that the study was the first research to examine the linkage between types of finance activities used by women entrepreneurs during various stages in the business cycle.

"Bootstrapping is a critical yet largely underdeveloped skill set for women entrepreneurs," she said. "This study extends our understanding of the underpinnings of a bootstrapping approach."

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