Rachel McCormack: A Bootstrap Funding Model

It is quite impressive that MicroMax has never taken any outside funding to launch or continue operations. Rachel McCormak pointed out in the interview that MicroMax really strives to not use outside funding so that she (and other owners) remain in complete control of their business. The interviewer pointed out that with service firms, there isn’t really any collateral to provide to a lender, which in itself, makes lenders apprehensive to loan to service firms, not even taking into account the current state of the economy. Rachel has invested equity capital into MicroMax, sometimes also referred to as risk capital, because if the business fails, it puts the owner at direct risk, which is not the case with sources of capital. Since personal savings are the least expensive source of funds available, Rachel has made a good choice because her finances allowed her to do so. Rachel did mention in the interview that the only loan of any sort that has funded MicroMax is a home equity loan or line of credit that was used to launch the business. Other than that, no outside financing has been used. When a business owner receives outside money, he or she is essentially surrendering some part of ownership in his or her company, which Rachel did not want to do. Many business owners aren’t so lucky to even have the choice to not use outside funding. Rachel did mention that the lending institution she belongs to seemed willing in the past to extend a loan to her for MicroMax, but Rachel stated that she thought that was only due to her being a bank customer for years, and the decision was being based on her as a customer of the bank. Should MicroMax ever wish to expand significantly and require outside financing, it has already taken the first step to be successfully approved for a loan. Lenders and investors expect entrepreneurs to put their own money into a business at start-up. Banks know that if an entrepreneur is not willing to risk his or her own money, banks and investors are not likely to risk theirs either. I’d be interested in seeing other interviews with Rachel. I’m curious to hear about how small her company was at start-up, and how much it’s grown both revenue and employee-wise since inception given her choice not to obtain any outside financing. Adrianne Smallwood – EMU Student