Venture Capital,

Vol. 8, No. 1, 15 31, January 2006

The Use of Bootstrapping by Women

Entrepreneurs in Positioning for Growth
CANDIDA G. BRUSH*, NANCY M. CARTER**,
ELIZABETH J. GATEWOOD{, PATRICIA G. GREENE*, &
MYRA M. HART{
*The Blank Center, Babson College, Babson Park, MA, USA **Catalyst Inc and University of St Thomas,
Minneapolis, MN, USA {Wake Forest University, Winston Salem, NC, USA {Harvard Business School,
Boston, MA, USA

(Accepted 7 October 2005)

ABSTRACT The number of women entrepreneurs is rising rapidly and many are creating
substantial businesses. For most women-led ventures, growth is funded by personal investment and
debt, although a small percentage draw on private equity investment to fuel high growth. Of those
that seek growth, not only do they face higher obstacles in obtaining capital, but little is known about
ways they position ventures for growth. This paper addresses the question: How do women develop
nancing strategies to prove the business concept, meet early stage milestones, and demonstrate to
external investors the value and potential of their businesses? Data are drawn from phone interviews
with 88 US female entrepreneurs seeking an equity investment to grow their businesses. The analysis
examines the correspondence between bootstrapping and stage of business development. Results show
signicant dierences in the use of bootstrap options utilized by women-led ventures depending
on stage of business development. Companies that have not achieved sales were more likely to
emphasize bootstrapping to reduce labour, while those companies with greater sales were more likely
to minimize cost of operations. Implications for future research and education are suggested.
KEY WORDS: Women entrepreneurs, bootsrapping, private equity, growth

Introduction
Women are majority owners of 30% (6.7 million) of all privately held rms in the
United States and own at least a 50% share of 46% (10.1 million) of such
enterprises.1 These rms boast $1.2 trillion in revenues and employ 19.1 million
employees (CWBR, 2004). Although the number and importance of women-led
ventures grew substantially over the past two decades, most of the rms are smaller
than average with only 16% achieving revenues of more than $500 000 (Brush et al.,
The authors of this paper are listed alphabetically because their respective contributions are equal.
Correspondence Address: Professor Candida Brush, Presidents Chair in Entrepreneurship, Chair:
Entrepreneurship Division, Babson College, The Blank Center, Babson Park, Massachusetts, MA
02457, USA. Tel: 1 (781) 239 5014; Fax: 1 (781) 239 4178; Email: cbrush@babson.edu
ISSN 1369-1066 Print/1464-5343 Online/06/010015-17 2006 Taylor & Francis
DOI: 10.1080/13691060500433975

16

C. G. Brush et al.

2003; CWBR, 2004). Approximately 280 000 US women-led businesses had annual
sales over $1 million in revenues. Even among this subset of larger rms, the majority
are nanced through the use of personal savings, credit card, personal debt and some
commercial debt. Very few were able to draw on the nancial resources provided by
venture capitalists. Statistics indicate that less than 5% of all equity investments were
made in women-led rms (Greene et al., 2001).
The trends in the US are similar to those in other countries. Women worldwide are
actively launching and managing entrepreneurial ventures. While the Global
Entrepreneurship Monitor (GEM) project shows that women in most countries
are starting ventures at a lower rate than men, womens entrepreneurial activity is
greater than 30% in many countries (Minniti et al., 2004). Other research has shown
that the percentage of women-owned businesses is more than 30% in Canada,
Denmark, Finland and New Zealand (Greene et al., 2005).
But, as in the US, men-owned businesses tend to be larger and nancially stronger.
This may be related to access to growth capital. For instance, in Canada,
approximately 43 000 women-headed rms meet F Capitals (Canadas only venture
capital rm catering to women) investment criteriaat least three years of
operations, over $500 000 in annual revenues and business focus on life sciences or
technology. Yet, only 5% of all venture capital in Canada goes to businesses headed
by women (Jennings and Cash, 2006). And in Northern Ireland, it has been reported
that even though women aspire to grow ventures, they receive a small proportion of
private equity (Henry et al., 2006).
There are many hypotheses for why women-led businesses receive such a low share
of equity investment. Some suggest that women choose not to grow their ventures, or
that they lack the experience or management capabilities, while others argue that
women start businesses in low growth, highly competitive sectors unattractive to
equity providers. But emerging research shows that aspiring women who succeed
in acquiring equity are those with high technology or biotechnology ventures, who
have access to nancial networks (Brush et al., 2003; Carter et al., 2003). Yet, even
for these women entrepreneurs, acquiring equity is an enormous challenge.
It has been argued that most small and new rms face greater obstacles in
obtaining capital than their older and larger counterparts because of information
asymmetries, lack of market access, and idiosyncratic forces such as the inuence of
the entrepreneur on nancing and capital structure choices (Cassar, 2001). In order
to overcome these challenges, entrepreneurs must prove their concepts and gain
market acceptance. During this time, entrepreneurs generally use personal or
internally generated funds, and then control costs and manage capital expenditures
to achieve benchmarks. This process of internal funding is known as bootstrapping.
It is a strategy for nancing a small rm through the creative acquisition and use of
resources without raising equity or borrowing money (Bhide, 1992; Freear et al.,
1995; Van Osnabrugge and Robinson, 2000). Bootstrapping generally takes two
forms: rst, to minimize the need for nancing by securing resources at little or no
cost; and second, to creatively acquire resources without using bank nancing or
equity (Freear et al., 1995; Landstrom and Winborg, 1995; Bhide, 2000; Harrison et
al., 2004). The process enables the entrepreneur to maintain cash and manage the
business in a resourceful and creative manner (Bhide, 2000). Founders who learn to
bootstrap their businesses eectively gain legitimacy in the eyes of stakeholders

Positioning for Growth

17

(Freear et al., 1991). Further, bootstrapping (e.g. use of credit cards) is an easy way
to obtain capital often without collateral, which can be detrimental if used to excess
or inappropriately (Van Auken, 2005). But, more often, bootstrapping assists in the
development of knowledge, and human and technical resources, and these activities
may help the entrepreneur to develop a lean mindset (Harrison et al., 2004). This
process should increase their likelihood of acquiring growth capital in the next stage
to fuel growth, and has the added benet of retaining a higher percentage of founder
ownership.
There are several studies that address venture bootstrapping, but none explore
the specic practices women entrepreneurs use to position their rms for growth
(Freear et al., 1991; Freear et al., 1995; Landstrom and Winborg, 1995; Winborg and
Landstrom, 1997; Mason and Harrison, 1999; Van Auken, 2001; Gatewood et al.,
2003; Harrison et al., 2004; Van Auken, 2005). Given the growth, presence and
contributions of women-led businesses, it is surprising that this population is omitted
from research. Furthermore, a better understanding of how women successfully
bootstrap their businesses to increase chances of acquiring later investment can
provide valuable advice for women seeking to grow their businesses. Therefore, our
study is guided by the following question: What nancing strategies do women use
to prove their business concept, meet early stage milestones and demonstrate to
external investors the value and potential of their businesses?
Using data drawn from 88 female entrepreneurs seeking an equity investment to
grow their businesses, we examined the eect of bootstrapping on stage of business
development. The following sections include a review of the literature, methodology,
results and a discussion of ndings and implications.
Background
The growth of a new venture is grounded in the entrepreneurs expectations for the
future of the business and the deployment of productive resources (Penrose, 1959). It
is the entrepreneurs ability to acquire and leverage resources productively that
distinguishes those enterprises able to achieve high growth. In addition, the nature of
the business concept, strategic direction, commitment and focus, attitudes towards
risk and uncertainty, managerial skill and environmental conditions all contribute to
the rate and scope of a rms growth (Penrose, 1959). Many dierent resource types
are required (e.g. social, human, organizational, technical), but nancial capital is
one of the most important resources because it enables the acquisition of additional
human, physical and technological resources. (Greene et al., 1997; Bhide, 2000).
Financial resources can come from multiple sources, including personal savings,
family and friends, banks, angels, and suppliers, and are cash or cash equivalents
(Bygrave, 1992; Freear et al., 1991; Petty and Bygrave, 1993). Financial capital is an
instrumental resource in that it can be used to develop and expand other resources
(Brush et al., 2001). The task of identifying, attracting and persuading nancial
resource suppliers to commit to the venture is often the single biggest obstacle an
entrepreneur faces (Scott, 1987; Katz and Gartner, 1988; Bhide, 2000).
This challenge is even greater for high-growth entrepreneurs, whose appetite for
large amounts of capital may require equity investors. Investors are always seeking
good opportunities, but frequently have more investment possibilities than they can

18

C. G. Brush et al.

or will choose to fund. Investors use widely varying criteria for determining which
investments best t their portfolio, and these criteria may not t with the strategic
vision of the entrepreneur (Timmons and Sapienza, 1992; Timmons, 1997; Bhide,
2000; Van Osnabrugge and Robinson, 2000).
Entrepreneurs who use capital raising ingenuity are most likely to acquire nancial
resources needed for growth (Penrose, 1959); this creative ingenuity, or bootstrapping,
can serve to better position a venture for growth. Approaches to bootstrapping fall
generally into four types of activities (Landstrom and Winborg, 1995; Van Osnabrugge
and Robinson, 2000; VanAuken, 2001, 2005; Harrison, et al., 2004):
(1)

(2)
(3)

(4)

Bootstrapping product developmentusing customers and suppliers to nance

research and development and operations (e.g. pre-paid expenses, royalties,
special deals on access to product hardware);
Bootstrapping business developmentusing owners cash to sustain business
(e.g. personal savings, working from home, personal credit cards);
Bootstrapping to minimize need for capitallimiting cash ow and expenses
(e.g. borrowing equipment, employing used equipment, using temporary
employees; trade credit);
Bootstrapping to meet the need for capitalraising cash and money to meet
short term needs (e.g. withholding or delaying owners salary, delaying payment
to suppliers, loans from friends and relatives).

Our contention is that use of these approaches to bootstrapping will demonstrate

to potential investors that the product or service is adequately developed and that
the women entrepreneurs have the necessary nancial savvy to generate internal
funds and control costs in a creative way. Eective execution of these activities shows
the rm can generate sucient demand in the marketplace to satisfy growth
expectations of investors and their expected return on investment.
Hypotheses
Approaches to resource acquisition vary throughout the course of development of a
business (Cassar, 2001; Van Auken, 2001; Winborg and Landstrom, 2001). As rms
move from emergent, to early and nally later stage growth, their resource and
nancing needs change because they are engaged in dierent activities (Churchill and
Lewis, 1983; Timmons, 1997). Emergent ventures need money to get products/
services developed for market, while later stage businesses use cash to hire employees
and expand (Bhide, 2000).
Myers Pecking Order of Capital Structure Theory asserts that information
asymmetries and monitoring costs will focus a rms attention on dierent sources
of capital at dierent times, taking into account the cost of debt and equity
(Myers, 1984). It is argued that rms will start with more exible internal sources
(personal funding), move to less exible external sources (debt), and nally more
expensive sources (equity) over the course of business development. Most
entrepreneurs will seek funds in a hierarchical pattern, starting with internal
funding (bootstrapping), followed by bank nancing (debt) and, nally, equity
capital nancing (Cassar, 2001).

Positioning for Growth

19

Hypothesis 1: Bootstrapping activities will vary by stage of business development.

Because most ventures are founded with personal funding, entrepreneurs are
motivated to generate sales as fast as possible. This requires that they engage in
activities designed to get the business operational quickly. For bootstrapping this
usually means taking action to develop the product/service and to get it into the
marketplace as economically as possible (Bhide, 2000). Activities like using
temporary employees to produce products, using their own savings, or employing
customer nancing would be priorities (Winborg and Landstrom, 2001). This leads
us to hypothesize that:
Hypothesis 2: Emergent businesses will concentrate on bootstrapping product and
business development more than businesses in early or rapid growth stages.
Empirical studies also show that rarely is only one source of nancing used (Scheer
et al., 1993). In addition, high growth ventures tend to use personal savings, bank
loans and other internal sources as a precursor to equity (Florin and Schulze, 2000).
There also is strong evidence that ventures engage in a variety of bootstrapping
activities at the same time, some designed to minimize costs, other activities intended
to meet needs for cash or develop the business (Van Osnabrugge and Robinson, 2000;
Van Auken, 2001, 2005; Harrison et al., 2004). The entrepreneur(s) must not only
manage product/service development but also put into place systems for managing
and supporting the companys growth. Some ventures put more eort into
bootstrapping than others (Carter and Van Auken, 2005). Because the purpose of
bootstrapping is to position the rm for growth by demonstrating product feasibility,
cash management capability and customer acceptance, it is reasonable to expect that
the importance of bootstrapping activities would also vary with the evolution of the
venture. For a venture in the early growth phase with customer sales and a developed
product, the importance of bootstrapping might be greater than during the emergent
stage because of the need to position for additional investment by both minimizing
expenses and meeting cash needs.
Hypothesis 3: Early growth stage businesses will exhibit greater importance of
bootstrapping than those rms in emergent or rapid growth stages.
According to Myers (1984), rms that already have acquired equity will be less likely
to give importance to bootstrapping. This idea was supported by Carter and Van
Auken (2005) who found those entrepreneurs perceiving their ventures to be more
risky were more likely to put more eort into bootstrapping. Coleman and Cohn
(1999) argue that small rms rely rst on retained earnings and personal sources
before turning to external sources of funding in order to avoid the costs of
monitoring and information gathering. However, once equity capital has been
raised, it is likely that bootstrapping activities will cease. Future rounds of funding
carry less access costs as the time spent to acquire following rounds of nancing is
signicantly less than for the rst round (Bruno and Tyebjee, 1985). Once a rm has
acquired equity, it will in eect have slack resources, at least for a foreseeable time.
If the entrepreneur expects to grow and the need for growth capital again exists, the

20

C. G. Brush et al.

entrepreneur is more likely to perceive equity investment as the appropriate pathway

for funding (Bruno and Tyebjee, 1985). Finally, equity investors will focus the
entrepreneurs attention on strategic, marketing and product issues, as one of their
primary goals will be revenue growth (Bygrave et al., 1999). The equity investors will
expect to assist the entrepreneur in raising any additionally needed funds from other
equity investors, replacing the need for bootstrapping (Gorman and Sahlman, 1989).
These arguments lead us to hypothesize that:
Hypothesis 4: Businesses with equity investments will reduce their bootstrapping
activities.

Methodology
The sample for the study was women entrepreneurs who applied to Springboard
2000 Forums in Silicon Valley (San Francisco) and Mid-Atlantic (Washington, DC)
during 1999. The Forums were developed to showcase women-led ventures to
potential investors.2 We chose this sample specically because we felt they would be
most likely to engage in bootstrapping behaviour as a precursor to seeking equity
funding. All applicants to the Forums were seeking equity to fund rapid growth and
the majority were technology- or bioscience-based businesses. Eligibility for
participation in the Forums required that one of the owners and key managers on
the start-up team was a woman. Successful women applicants made presentations
requesting an equity investment to an audience of venture capitalists, angels and
corporate fund managers.
We rst sent a letter and email to our Springboard applicant sample (n 466) asking
them to participate in a study on business owners seeking venture capital. The letter
informed them that they would be contacted within a few days for a phone interview and
oered a $25 gratuity for their participation. A second email was sent reminding them of
the upcoming phone call and distributing visual aids displaying categories of responses
to questions that would be used during the interview. The respondents were encouraged
to keep the visual aids handy to their phone so they could refer to them during the call,
shortening the amount of time needed to complete the interview.
Phone interviews were conducted by a national, independent market research rm.
Of the 466 eligible businesses, 171 of the entrepreneurs could not be reached because
the application listed a wrong phone number, a fax or international phone number;
the phone had been disconnected, or the female entrepreneur was not available
during the study period (e.g. out of the country). Interviews averaging 62 minutes
(36 minutes shortest; 113 minutes longest) were completed with 100 entrepreneurs. A
number of other entrepreneurs in the sample had put o the interviewers several
times during the study period asking the market research rm to call back at a more
convenient time, but not refusing to participate.
Three of the 100 respondents reported that their company was substantially older
than seven years. We eliminated those three from the analyses. Of the remaining
respondents, 89 reported that their companies were in the Information Technology
(IT) sector, three in biotech, and ve refused to indicate industry sector. Since equity
nancing is industry specic, we retained for analyses only the 89 that reported being

Positioning for Growth

21

in IT, and of these one respondent refused to answer any of the bootstrapping
questions of interest leaving data from 88 interviews for analyses.

Measures
Dependent Variable
The dependent variable of interest was the stage of business development (Timmons,
1997). We used sales revenue as a proxy measure, reasoning that various levels of
revenues corresponded to the developmental stage of businesses. During the phone
interview respondents were asked to categorize the approximate annual gross sales
of the business during 2000 into one of 10 range categories. We collapsed the
10 categories into three representing emergent, early growth, and rapid growth
businesses. Emergent was represented as not yet having achieved rst sales. About
one-third of the sample (31%) fell into this stage. The early growth stage was
represented as having sales up to a quarter million dollars ($1 and $249 999). We
reasoned that during this stage of the business development, the rst formal
exchanges were occurring between the rm and major stakeholders in the
environment. Slightly over one-third of the sample fell into this category (40%).
The rapid growth stage of development was dened as having greater than $250 000
in annual sales. Companies in this category (28%) were thought to have clearly
established customers and suppliers and were on a more rapid growth trajectory.
Independent Variables
(a) Bootstrap nancing. Using items developed by Landstrom and Winborg (1995)
and used previously by Van Osnabrugge and Robinson (2000); Winborg and
Landstrom (2001); Van Auken (2001, 2005) and Harrison et al. (2004), we asked
respondents about their use of various bootstrapping options. Interviewers
instructed respondents to refer to the visual aid listing potential sources of funding
and asked them to indicate whether or not they used the source to fund their
company. Each option was dummy coded: used 1; not used 0. If the respondent
reported using a bootstrapping option, they were further asked to indicate how
important the option was in nancing their business over the past year on a vepoint scale ranging from very important (5) to very unimportant (1). We created a
new scale for each bootstrapping option by multiplying the extent of importance
they had assigned to it by whether they had used the option. This yielded a scale for
each option ranging from 0 to 5 with 0 indicating they had not used the option (thus,
of no importance), and 5 indicating they had used an option and it was of great
importance in their current nancing strategy.
(b) Number of bootstrapping options. We determined the number of bootstrapping
options by tallying the number of options used by the company.
(c) Importance of bootstrapping. The importance of bootstrapping was determined
by the total importance given to bootstrapping as a part of the rms nancing
strategy. We measured this by summing the importance values for all bootstrapping

22

C. G. Brush et al.

options used by the rm and dividing by the number of options used. Because the
distribution of the variable was skewed we adopt the square root of the value to
smooth the distribution.
(d) Outside funding. The interviewer asked whether the business had ever received an
equity investment prior to their application to the Springboard 2000 Forum, and if so,
how much had been received. Interviewers dened outside funding for the respondent
by stating that most businesses have two types of investments: (1) ownership or equity;
and (2) loans or debt. Those who own equity in the business usually expect to receive a
share of the prots. Loans or debt usually must be paid back and often there is interest.
The question asked: Has this business ever received an equity investment other than
from yourself or the start-up team, or not? The business was determined to have an
equity investment if the respondent: (1) reported the amount of equity that had been
received and reported using at least one of six equity sources that were listed later in the
interview; or (2) if they reported having received equity but failed to report the amount,
they were phoned in a follow-up interview to verify that they had received equity
funding prior to the date of the rst phone interview. If they could not be contacted in
the follow-up interview, open-ended responses on the survey were used to verify whether
they had received equity. Outside nancing was dummy coded one (1) if they met the
equity funding criteria, or zero (0) if they had yet to receive an equity investment. Fortytwo (48%) of the respondents met the equity requirement. Forty-six (52%) were
determined to be still seeking their rst external equity investment when they submitted
their Springboard application.
Control Variable
Age of the rm at the time of the phone interview was computed from questions
asking the respondent to report the month and year the company was started. Firm
age ranged from less than one to seven years old, with the average being two years.
Findings
Table 1 displays descriptive statistics of the sample and shows that almost all rms
hoped to grow, with only 7% wanting to control the growth of the business so that
they could manage it themselves with only a few key employees; and 94% seeking
national or global scope of operations. Seventy per cent of the founders reported
working for at least one start-up company prior to the one being reported on in this
study, and 56% reported having an equity stake in a prior start-up company. More
than 18% of the founders had MBAs, 31% had Masters in other elds, and 5% had
PhDs. For almost 30%, their degree was in technology or science. The founders had
worked just over 10 (11.1) years in the industry of the new start-up, and had almost
20 years of full-time work experience (19.01).
As a rst step, we conducted a factor analysis of the bootstrapping options.
Table 2 reports these results. Our measures capture the extent to which dierent
items are relatively more or less important. Although somewhat low, the Cronbach
alpha reliability coecients for each factor are within a range acceptable for
exploratory research. This is consistent with previous work suggesting that nancing

Positioning for Growth

23

Table 1. Sample descriptive statistics

Percentage
Growth intention
Control growth
Grow steadily
Grow rapidly
Intended business scope
Local community
Regional
National
National with a few international branches
Global
Founders with prior start-up experience
Founders with prior start-up ownership
Founders years full-time work
Founders years working in start-ups industry
Founders education
MBA
Other Masters
Doctoral degree
Founders degree emphasis
Technology or science

Mean

s.d.

19.01
11.10

8.94
9.22

7
21
72
4
2
36
19
38
70
56

18
31
5
27

patterns are hierarchical depending on stage of development (Florin and Schulze,

2000), size and intent to grow (Cassar, 2001).
For this analysis, we used 14 of the 18 bootstrapping options. Three of the omitted
options were not pertinent to rms that had no sales (31% of the rms in our sample
had yet to achieve rst sale), and the fourth was highly skewed as only four of the 88
respondents had used the option.3 All factor loadings met the recommended cut-o
rate, with the lowest being 0.55. The analysis yielded six factors, which explained
69% of the total variance. It should be noted that for the sixth factor we retained
only the item measuring delaying founder compensation because the two items on
this factor are highly negatively correlated.
Table 3 illustrates how the factors map to previous bootstrapping frameworks
advanced in the literature (Freear et al., 1995; Winborg and Landstrom, 1997).
Prior frameworks segmented bootstrapping options into four categories: (1)
Bootstrap product development; (2) Bootstrap business development; (3) Bootstrap
to minimize need for capital; and (4) Bootstrap to meet need for capital. Our
results indicate that further renement is warranted. We found two factors related
to minimizing the need for capital, one focused on minimizing capital needed for
tangible assets (e.g. inventory and equipment); the other related to reducing
capital needed to support people (e.g. using employees to nance the operation).
We also found two factors related to meeting the need for capital. One relates to
securing money from those the founders trust and love (and probably dont have
to put up collateral to obtain); the other to delaying or forgoing salary for the
founding team.
To test the hypotheses we computed independent variables from the factor analysis of the bootstrapping options that represent the six constructs displayed in

Sum of squared rotated loadings

Percentage variance accounted for
Cronbach alpha
Personal credit cards
Business credit cards
Personal savings
Leasing equipment
Credit from supplier
Temporary personnel
Customer funded R&D
Advances from customers or licenses
Loans from partners family and friends
Loans from family and friends
Pay employees with stock
Deals with service providers
Delayed team compensation
Personal bank loan

Factor

0.85
0.73

1.81
12.99
0.68

Minimize
Operation Costs

Own
Money
1.90
13.54
0.63
0.78
0.70
0.56

0.75
0.71
0.69

1.69
12.07
0.59

Develop
Product

0.80
0.78

1.54
10.99
0.71

Close Ties
Capital

Table 2. Factor loadings for bootstrapping items: six factor solution, N 88

0.80
0.79

1.48
10.55
0.54

Minimize
Labour Costs

0.80
70.55

1.19
8.49

Owner
Labour

24
C. G. Brush et al.

Positioning for Growth

25

Table 3. Factors linked to bootstrapping type

Bootstrap product development
Bootstrap business development
Bootstrap to minimize need for capital

Bootstrap to meet need for capital

Factor 3: Using customers and suppliers

(temp employees) to nance R&D and
operations
Factor 1: Owners cash resources that they can
quickly access
Factor 2: Reducing outows for inventory
and equipmentreduce operations cost
Factor 5: Using employees to nance
operation (including service providers)
Factor 4: Loans secured from close ties. May
put relationship at risk
Factor 6: Owners delayed compensation

Table 3. We summed the scores associated with each of the items and divided by the
number of items in the scale.
Table 3 shows how the six bootstrapping factors are consistent with previous
work suggesting that nancing patterns are heirarchical depending on stage of
development (Florin and Schulze, 2000), size and intent grow (Cassar, 2001). Table 4
presents the correlation matrix of the independent variables (computed from factor
scores) and the control variable.
To test Hypothesis 1the speculation that there will be variation in
bootstrapping by stage of business developmentwe performed a discriminant
function analysis. The discriminant variables were entered stepwise according to
the Wilks Lambda criterion. Stepwise analysis was appropriate, because the
relationship between the discriminant variables and the business development stage
was not known from previous research. The functions were rotated using varimax
rotation to aid in the interpretation of the functions meaning. The discriminant
analysis revealed two functions: the rst had an eigenvalue of 0.444 accounting for
86% of the variance with a canonical correlation of 0.554; the second had an
eigenvalue of 0.073 accounting for 14% of the variance. Wilks Lambdas prior to
extraction were 0.645 (p 5 0.000) and 0.932 (p 5 0.018) respectively. The results
displayed in Table 5 show that the rst function explains most of the variance and
dierentiates businesses at the rapid growth stage of development from those in
emergence or early growth. The second function discriminates businesses at the
emergent stage from those in growth and adolescence. These results provide partial
support for Hypothesis 1 that bootstrapping strategies and activities will vary by
stage of business development. Emergent and rapid growth businesses use quite dierent bootstrapping options. However, there appears to be no signicant dierence
between emergent and early growth rms, or early and rapid growth rms.
To test Hypothesis 2that emergent businesses will concentrate on bootstrapping
product and business developmentwe examined the types of bootstrapping options
that discriminated the businesses. Table 5 shows that companies yet to achieve rst
sales (emergent businesses) are signicantly more likely to emphasize bootstrapping
that would reduce labour costs than the other two groups of businesses (rotated
standardized discriminant coecient 0.988). An examination of the means associated with bootstrapping product development reveals that the importance early
growth and rapid growth businesses put on bootstrapping product development is

Product development
Business development
through own money
Minimize capital by
reducing operations cost
Minimize capital by
reducing labour costs
Meet capital through
close tie loans
Meet capital through
delayed compensation
Number of bootstrapping
options
Intensity of bootstrapping
Equity received
Firm age

88
88
88

88

88

88

87

88

88
88

1.48
0.48
2.86

5.70

3.13

1.34

2.20

1.32

1.25
2.65

Mean

Notes: p 5 0.05; p 5 0.01; p 5 0.001.

8
9
10

1
2

0.32
0.50
1.44

2.86

2.13

1.75

1.75

1.66

1.31
1.44

S.D.

70.07
70.14
0.08

0.46c

0.54c
70.11
0.16
0.12

0.10

70.17
0.48c
0.14

0.61c

0.05

0.24a

0.34b

0.09

0.13

0.14

0.20

0.12

0.28b
0.18

1
0.02

0.06
0.18
70.09

0.51c

0.15

0.17

70.05
0.12
70.07

0.52c

0.02

1
70.38c
70.06
70.45c

0.66c
0.17
70.36c

0.05

Table 4. Descriptive statistics and correlations for bootstrap nancing, equity funding and rm age

1
0.30b
70.12

1
70.03

10

26
C. G. Brush et al.

Positioning for Growth

27

Table 5. Results of discriminant analysis: bootstrapping options

Variable
Canonical discriminant functions evaluated
at group means (centroids)
Emergent businesses
Early stage growth businesses
Rapid growth businesses
Rotated standardized discriminant function
coecients
Minimize capital by reducing labour cost
Minimize capital by reducing operations costs
Correctly classied 57%

Function 1

Function 2

70.329
70.365
0.912

0.602
70.113
70.482

0.247
0.924

0.988
70.428

twice that of emergent businesses (mean value 0.72 for emergent; 1.33, early
growth; and 1.69, rapid growth). There is almost no dierence in the emphasis
businesses in each development stage give to bootstrapping business development by
using cash resources owners can access quickly (mean value 2.68 for emergent
businesses; 2.86, early growth; 2.64, rapid growth). The discriminant analyses also
reveal that owners in rapid growth stage businesses were signicantly more likely to
use bootstrapping to minimize capital by reducing costs of operations than
businesses in either of the two earlier development stages (rotated standardized
discriminant coecient t 0.924).
The ndings fail to support Hypothesis 2. What appears to distinguish the
emergent stage of development from the later stages is more focus on minimizing
costs of labour rather than using customers and suppliers to nance product
development, or using owner controlled cash resources for business development.
We had expected that these bootstrapping options would be more emphasized
during early growth than the emergent stage of business development. Interestingly,
the bootstrapping options that did discriminate the stages of business development
both have to do with minimizing costs within the companies rather than focusing on
accessing capital.
To test Hypothesis 3that early growth businesses will exhibit greater importance
given to bootstrapping activities than those of emerging businesswe examined
both the number of bootstrapping options used and the level of assigned importance
to the bootstrapping options across both stages of business development.
Interestingly, the measures are negatively correlated. As shown in Table 4, the
higher the intensity score, the lower the number of bootstrapping options used.
To test the hypothesis we used t-tests to examine the mean number of options and
mean importance assigned to bootstrap nancing during the early growth and
emergent stages of business development. Contrary to our expectations there was no
statistical dierence in the number of bootstrap options used (t 70.537), or in
the importance bootstrapping was assigned during these business development
stages (t 1.315). Emergent businesses used on average 5.08 options, early growth
companies, 5.40 options. The mean importance associated with early growth stage
businesses was 1.47, for emergent businesses it was slightly higher, 1.56. Hypothesis 3
was not supported.

28

C. G. Brush et al.

We tested Hypothesis 4 that businesses that had received equity funding would
decrease the importance they assigned to bootstrapping in their nancing strategy
by comparing both the number of bootstrapping options used and the importance
level. T-tests reveal that although the importance of bootstrapping fails to distinguish receipt of equity funding (t 0.583), the number of bootstrapping options
does (t 73.343, p 5 0.001). The average number of options used by businesses that
had already received equity funding was 6.71, those yet to receive equity used only
4.78 options.
Discussion and Implications
This research set out to better understand how women entrepreneurs utilize
bootstrapping to nance their businesses across stages of development. We analysed
bootstrapping activities in a sample of 88 women-led high growth, high technology
rms. In agreement with previous literature arguing that rms will engage in a
variety of bootstrapping activities, we found that the types of bootstrapping
(meeting need for cash, cost conservation, product development or business
development) used across various stages of business development diered
signicantly (Van Auken, 2001). A variety of nancing activities were carried out
to position their companies for growth. Contrary to expectations, however, we found
that businesses in the emergent stage of development emphasized minimizing capital
by reducing labour costs rather than by focusing on bootstrapping that would
facilitate the rapid development of their products and the business. In contrast,
businesses in the rapid growth stage were found to be more likely to focus on
minimizing capital by reducing operations costs (see Table 6).
Results showed no support for our supposition that rms in early growth stages
would emphasize bootstrap nancing more than businesses at emergent or rapid
growth stages. We had argued that the need to focus on nding cash for putting
systems into place while simultaneously nishing product/service development
would cause rms to rely more extensively on bootstrap nancing to position the
rm for future growth.
We did nd support for our supposition that rapid growth businesses would be
signicantly more likely to have favourably positioned themselves for equity
investments through nancial strategies. However, there was no support for the
argument that this positioning would result in their de-emphasizing bootstrapping as
part of their nancing strategy. We found the opposite eect. Those with equity were
using signicantly more bootstrapping options, although not assigning them any
greater importance level.

Table 6. Chi-square test for equity received and stage of business development
Source
No equity
Equity received

Emerging

Early Growth

Rapid Growth

73%
27%

57%
43%

26%
74%

Positioning for Growth

29

Our ndings complement previous research that examined the types of bootstrapping activities relative to the type of business (Van Auken, 2001; Winborg and
Landstrom, 2001). But to our knowledge, this is the rst research examining the
linkage between types of activities and stage of development, conrming previous
research ndings about hierarchical nancing for growing ventures (Florin and
Schulze, 2000; Van Osnabrugge and Robinson, 2000).
This research does reveal that women entrepreneurs leading high technology
ventures that seek growth do practise a variety of bootstrapping activities to position
their ventures for growth. The nature and importance of bootstrapping activities
does vary by stage, and increases even with the receipt of equity funding. It is likely
that our ndings about bootstrapping activities relative to stage of development
would equally apply to ventures led by men. Exploring bootstrapping behaviours on
a sample of men would be a future extension.
As with all research, our study was limited by the relatively small sample size and
convenience. While we did randomly sample from all applicants to Springboard, the
geographic specialization of the Forums may limit generalizability of our ndings to
cities for which there were not applicants. On the other hand, because the Forum
cities represented the most populous cities for high technology businesses (e.g.
Silicon Valley, Boston, Chicago, Washington, DC and New York) we are fairly
comfortable that the ndings and sample are indeed representative of aspiring high
tech, women-led ventures.
Finally, we anchored this study in Penroses (1959) work on the resource building
process and creative nancing that occurs when ventures seek growth. In support of
her work, we found that ventures that exhibited more creative nancing strategies
and demonstrated more importance for bootstrapping were more likely to have
reached rapid growth stage of development. However, we did not examine
aspirations and goals of the entrepreneurs as it relates to bootstrapping activities.
A more complete picture of bootstrapping behaviour and how a venture might be
better positioned for rapid growth might be gained by examining these relative to
aspirations for the size and scope of the rm.
Acknowledgements
A version of this paper was presented at the Babson Kauman Entrepreneurship
Research Conference, University of Strathclyde, Glasgow, Scotland. The authors are
grateful to the Kauman Center for Entrepreneurial Leadership for their support of
this research, and to three anonymous reviewers for their helpful suggestions and
ideas.
Notes
1 In this paper, the term women-owned businesses means the business is 51% owned by a woman.
However, in the case of equity investment, the entrepreneur gives up ownership for equity and therefore
the business is women-led meaning the woman is executive on the management and/or founding team
(Brush et al., 2003).
2 Springboard is a national non-prot organization accelerating womens access to the equity markets.
Their programmes educate, showcase and support women entrepreneurs as they seek equity capital and
grow their companies. To date, Springboard has sponsored 14 forums in 7 markets, with 320 presenters.

30

C. G. Brush et al.

Springboard companies have raised $3 billion, and more than 4 000 investors, nanciers and service
providers participate in the Forums. For additional information on the purpose and nature of these
forums, see www.springboardenterprises.org.
3 Omitted bootstrapping options: (1) Using interest on overdue payment from customers; (2) Selling or
pledging accounts receivables; (3) Retained earnings; (4) Loans from previous employers.

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