FINANCIAL BOOTSTRAPPING IN SMALL BUSINESSES: EXAMINING SMALL BUSINESS MANAGERS' RESOURCE ACQUISITION BEHAVIORS

By Joakim Winborg, H. Landström. 2001

644 citations recorded by the source corpus.

In recent years, small businesses have received much attention from policy makers and researchers, in that these businesses are considered important for economic growth and job creation. At the same time small businesses are assumed to face major problems in securing long-term external finance, which is regarded as restraining their development and growth. Small business managers are assumed to use institutional finance as a means of meeting the need for resources, and as a consequence the major part of the research on small business finance has focused on constraints in the supply of institutional (market) finance. As we see it, most small business managers handle the need for resources using means other than external finance by applying different kinds of financial bootstrapping methods. Financial bootstrapping refers to the use of methods for meeting the need for resources without relying on long-term external finance from debt holders and/or new owners. However, these other means of resource acquisition have, with few exceptions, not been focused on within earlier research on small business finance. Against this background, the purpose of this study is to describe small business managers' use of different financial bootstrapping methods, and, more importantly, to develop concepts that can help Its better understand small business managers' financial bootstrapping behaviors. The research process was initiated with a number of unstructured interviews conducted with small business managers, accountants, consultants, bank officials, and researchers, in order to identify different financial bootstrapping possibilities. On the basis of the interviews and an earlier study on financial bootstrapping, resulting in the identification of 32 bootstrapping methods, a questionnaire was constructed and sent to 900 small business managers in Sweden. Given the limited knowledge within the area of financial bootstrapping, the study is based on explorative factor analysis and cluster analysis. From the cluster analysis six clusters of bootstrappers were identified differing from each other with respect to the bootstrapping methods used and the characteristics of the business. On the basis of this information the different clusters were labeled: (I) delaying bootstrappers; (2) relationship-oriented bootstrappers; (3) subsidy-oriented bootstrappers; (4) minimizing bootstrappers; (5) non-bootstrappers; and (6) private owner-financed bootstrappers. The groups of financial bootstrappers show differences in their orientation toward resource acquisition, representing different aspects of art internal mode of resource acquisition a social mode of resource acquisition, and a quasi-market mode of resource acquisition. We find that the delaying bootstrappers, private owner-financed bootstrappers, and minimizing bootstrappers all represent an internal mode of resource acquisition. The relationship-oriented bootstrappers follow a socially oriented mode of resource acquisition, whereas the subsidy-oriented bootstrappers apply quasi-market oriented resource acquisition. This study contributes to our empirical understanding by providing knowledge about the financial bootstrapping methods used in small businesses Furthermore, by developing concepts this study contributes to the conceptual development of our knowledge about financial bootstrapping. The implication of this study is that financial bootstrapping is a phenomenon which deserves more attention in future research on small business finance. At the same time, financial bootstrapping behavior is probably a more general phenomenon appearing in different contexts, such as R&D activities in large businesses, financing startups, etc. Finally, the study points out implications for small business managers, consultants, teachers, etc. Practitioners often tend to focus on market solutions to resource needs. This study shows, however, that this strong focus cart be questioned. Resources needed in small businesses can in many situations be secured using financial bootstrapping methods, referring to internally oriented and socially oriented resource acquisition strategies.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/b63df4103b825f3aff993b4fd8b490b2bd2561cd

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Citations in the corpus

Exploring the resource logic of student entrepreneurs (2012, background): “In contrast, in bootstrapping the important thing is to be able to secure and use resources that are needed but not necessarily to own all of them (Winborg, 2009; Winborg and Landström, 2001).”
Institutional Perspectives on Entrepreneurial Behavior in Challenging Environments (2011, background): “Financial bootstrapping refers to attracting the resources needed without using external finance (Freear and Wetzel 1990) at low or no cost (Winborg and Landström 2001).”
Differences in the Usage of Bootstrap Financing among Technology‐Based versus Nontechnology‐Based Firms (2005, methodology): “The bootstrap financing methods also were grouped using Winborg and Landstrom (2001) factors.”
Individual–Level Resources and New Business Activity: The Contingent Role of Institutional Context (2013, background): “Extant research often focuses on the role of external finance as a means to meet short-term financial needs (Winborg & Landstrom, 2000), but entrepreneurs typically lack reliable performance data, collateral, or legitimacy, which may make it difficult to secure financing from external sources such…”
Engagement in entrepreneurship in emerging economies: Interactive effects of individual-level factors and institutional conditions (2016, background): “…and hence likely engagement in, entrepreneurship requires substantial personal financial capital in the form of household income (Reynolds, 2012; Winborg & Landstrom, 2000), irrespective of the presence of a supportive government, availability of relevant knowledge, or favorable norms in the…”
The Resource-Based View, Resourcefulness, and Resource Management in Startup Firms: A Proposed Research Agenda (2021, background): “…has devoted considerable attention to discussing resource acquisition, assembly, and orchestration (e.g., Clough, Fang, Vissa, & Wu, 2019; Winborg & Landström, 2001), far less attention has been given to resource management and the potential contributions the RBV could make to startups…”
A portfolio perspective on entrepreneurship and economic development (2015, positive): “A reliance on bootstrapping, bricolage, resource leveraging, and guerrilla tactics can find the new firm able to do far more with relatively little in resources (Baker and Nelson 2005; Winborg and Landstrom 2001).”
The Impact of Human and Social Capital on Entrepreneurs’ Knowledge of Finance Alternatives (2012, methodology): “Consistent with prior studies in entrepreneurial finance (Carter and Van Auken 2005; Winborg and Landström 2001), we conducted an exploratory factor analysis to identify groups of finance alternatives.”
Crowdfunding: An Industrial Organization Perspective (2010, background): “Several studies provide evidence of the different forms of alternatives used by bootstrapping entrepreneurs (see, Bhidé (1992), Winborg and Landstrom (2001) and Ebben and Johnson (2006), just to cite a few).”
Entrepreneurial finance: new frontiers of research and practice (2017, neutral): “Others argue that entrepreneurs can create and grow flourishing firms without raising the external financing that other firms consider to be essential, for instance, through financial bootstrapping and bricolage (e.g. Baker and Nelson 2005; Winborg and Landström 2001).”
Understanding place-based entrepreneurship in rural Central Europe: A comparative institutional analysis (2014, background): “…Small Business Journal 32(2) imply that an entrepreneur ignores or circumvents institutional rules (e.g. the ‘financial bootstrapping entrepreneur’, Winborg and Landström, 2001), while the latter relates to an entrepreneur’s active attempt to change certain institutional contexts (Welter and…”
Resourcing new businesses: social networks, bootstrapping and firm performance (2010, methodology): “We suggest that this is consistent with the sample of NES businesses which were at a much earlier stage than most studies discussed above (Carter and Van Auken 2005; Winborg and Landström 2001).”