The Education of Millionaires is a fantastic book by Michael Ellsberg. He does a wonderful job talking about the virtues of bootstrapping your business. You should run, not walk, to get your copy of this book.
I’m a big fan of the bootstrapping approach because using debt/leverage can be a very dangerous approach, especially in a small to medium size business. It's very important to use debt cautiously.
And the author does a brilliant job of making the case for why we should look at funding our college education, and the college education of our children, using the same bootstrapping principles.
Check this out from The Education of Millionaires. I love it.
“Bootstrapping is a concept central to the themes in this book. In the world of business, it’s a strategy that involves getting to the point of profitability as quickly as possible—even if the profits are small—and then continually reinvesting profits to fuel growth.
… you can bootstrap your own education (including your continuing and professional education as an adult), and you can bootstrap your personal investments of time and money in your own career, just as you can bootstrap a business.
The essence of bootstrapping is keeping expenses low, generating income right away (even if it’s just a little bit), and continually reinvesting as much of that income as effectively as possible into expanding your future income.
… to get a better sense of what bootstrapping your own continuing education and personal investments might mean for you going forward, let’s look at the opposite of bootstrapping—lots of up-front expenditures and debt, with little up-front income generation. This is how a great deal of Americans “invest” in their human capital, and it’s how I myself lived during my twenties. Rather than bootstrapping, it might be called “charging the boots on credit card.”
Hey, I’ve got an investment opportunity for you.
It’s going to require an investment of about $45,000 to $200,000 on your part over several years. Given your current finances, you’re going to need to borrow a large part of that amount, that is, invest on margin, but that’s OK, the rates are pretty low. (One thing you should know, though, is that if the investment goes under, you’re personally on the hook for that money, until you pay it down, for the rest of your life. There is no way to discharge the debt in bankruptcy, and your future wages and social security benefits could be garnished if you can’t pay.)
The business I would like you to invest in is, well, sort of in the exploratory/development phase. It doesn’t really know what business it’s in, to be frank, or what product it sells. In fact, it may not even know that for a few years. The chief executive in the business may have to move back in with her parents at some point during this time – before she figures out the business’s mission, revenue model, or core competency. (Oh, and by the way, the CEO is quite immature. She is often irresponsible and from time to time becomes distracted by side projects, like partying.)
The business you’re about to invest in has absolutely no knowledge or experience in sales or marketing. It doesn’t even really know how to keep its own books or balance a budget, and often runs up a lot of credit card debt. It’s not even sure it wants to be a business; the CEO may want to start a nonprofit, pursue a passion in acting, or go help orphans in Botswana. The chief executive has no business network or contacts to speak of, and in fact, has no experience whatsoever running a business.
Unfortunately, this is precisely the way many people in America go about investing in themselves today. It’s the opposite of bootstrapping. It’s high-expenditure, high-debt up front now, and revenue (if at all) much later.”
Two important lessons
Lesson one is be smart about how you use debt and leverage in your business. It’s easy to get your head cut off using too much debt.
Lesson two, is give some serious thought to outlawing the use of student loans in your family. The number of student loans that go horribly wrong is breathtaking. Don’t put your kids through that (and definitely don't take out student debt yourself, or guarantee any debt, for your kids college education).
Help them develop a plan that gets them through school without having a ball and chain to drag around their entire life.
They will thank you for it!