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1. Introduction
In the domestic and international arena, entrepreneurship serves a catalyst
for economic development and value creation (Kirchhoff 1991, Benneworth
2004, Grilo 2006). EPCs aim is to be that catalyst within remote communities
in Australia. Presently, EPC is an early-stage social enterprise looking to
alleviate unemployment by empowering Aboriginal youth population with
economic opportunity. Based in the city of Broken Hill, EPC combines the
breakthrough potential of clean solar energy technology with a deliberately
youth-centered direct sales workforce to enhance living standards for even the
most remote communities in New South Wales. As a new enterprise with
limited financing options and even more limited capital resources, EPC
currently faces a challenge to launch its operations.
Providentially, one of the most academically-studied functional areas within
entrepreneurship has been entrepreneurial finance. Special emphasis has been
given to venture capital and angel finance as flagship topics within literature
(Fletcher 1995, Harris 1995, Cowling and Westhead 1996, Hamilton and Fox
1998, Cassar 2004, Rouse and Jayawarna 2006, de Bettignies and Brander 2007,
Carter et al. 2007, Franke et al. 2008 cited in Lam 2010). Though relevant,
according to Harrison (2004, p.307) institutional venture capital and business
angel finance are used by only a small proportion of new and growing
ventures.
As a resource-constrained start-up, possibilities are low for EPC to obtain
angel or venture financing at this stage. Accordingly, EPC can wait until they
raise enough money [to start operations] or use their own savings to achieve
some intermediate milestone before contacting outside investors
(Schwienbacher 2007, p. 754). The present report examines the second option
of how EPC may start even with their current limited resources. This paper
also discusses the definition of boot-strapping as a non-traditional funding tool
and its importance as well as its appropriateness in the context of EPC. More
importantly, the paper addresses boot-strapping implementation methods
directed at EPC and their employees along with entrepreneurs and society in
general.
2. What is boot-strapping?
The first reference to financial bootstrapping in the literature define it as a
way of securing the use of resources without relying on long-term external
finance (Freear, Sohl and Wetzel Jr. 1995 cited in Winborg 2009, p. 72).
Further, according to Winborg and Landstrom (2001, pp. 235-36), bootstrapping is defined as the use of methods for meeting the need for resources
without relying on long-term external finance from debt holders and/or new
owners. Likewise, Timmons (1999 cited in Harrison, Mason and Girling 2004,
p. 308) refers to bootstrapping is a way of life in entrepreneurial companies.
Boot-strapping can be segmented in two main forms (Harrison, Mason
and Girling 2004). Freear et al (1995a, b cited in Harrison, Mason and Girling
2004, p. 308) explains that the first form involves creative ways of acquiring
finance without recourse to banks or raising equity from traditional sources.
Further, the second form includes strategies for minimizing or eliminating the
need for finance by securing resources at little or no cost (Winborg and
Landstrom 1997, Winborg and Landstrom 2000, Winborg and Landstrom
2001, Winborg and Johannisson 2001 cited in Harrison, Mason and Girling
2004, p. 308). As one example of how boot-strapping works, entrepreneurs are
unable to raise outside capital, they are restricted to whatever amounts they
can contribute from their own personal savings and attract from family and
friends (Harrison, Mason and Girling 2004, p. 308) in order to grow and start
competing (Smith and Smith 1998 cited in Harrison, Mason and Girling 2004,
p. 308).
3. The importance of boot-strapping
Ebben (2009, p. 349) explains that empirical and anecdotal evidence suggests
that small firms bootstrap out of necessity rather than proactively. In fact,
many small entrepreneurial firms view boot-strapping see it as simply doing
whatever it takes to get by. Considering the inadequate assets of EPC, the
importance of boot-strapping tends to be crucial to their own survival as a
start-up (Ebben and Johnson 2006, Winborg 2001).
In addition, Timmons (1999 cited in Harrison, Mason and Girling 2004, p.
309) argues that bootstrapping strategies can be a major competitive
advantage by creating a discipline of leanness where everyone involved knows
that every dollar counts permeate the firm . Also, the principle of CYE Conserve Your Equity- becomes a way of maximizing shareholder value
(Timmons 1999, p. 39 cited in Harrison, Mason and Girling 2004, p. 309). This
financial self-restraint can prove to be a strong edge for EPC (Timmons 1999
cited in Harrison, Mason and Girling 2004).
Baker et al (2000 cited in Ebben 2009, p. 349) also argued that due to
overconfidence and general inexperience of entrepreneurs, financial capital is
generally not invested wisely when it is available, putting firms at a significant
disadvantage. In the case of EPC, as the company would ultimately be run by
inexperienced people (with no formal education in some cases); boot-strapping
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