[adventured]

This is partially true.

The non-true part of it, is that if you see half of your business vaporized in the downturn, your profit margin while bootstrapping will be erased and you'll lose money. That can easily happen at nearly all sizes in terms of costs drowning you.

$2m in sales, $200,000 in profit. Your sales suddenly fall to $1m (and in a bubble bursting scenario, that happens at warp speed, it'll make your head spin), I'd almost guarantee your costs will wipe out your profit in that situation (assuming you're not a one person shop). Then suddenly you're firing people, and it rattles your entire organization; existing customers lose confidence and switch to bigger competitors or back to internal solutions.

The dotcom bubble bursting was a very dramatic example of this, and the speed at which it killed good companies was intense. Where good companies that were modestly profitable still saw half their business killed off, and it was simply too much to bear because all of that damage doesn't happen in a linear fashion, it has immense knock-on chaotic effects to your business.

[codingdave]

Those risks can be mitigated with a scalable business model, which scales up or down. When I first starting getting into the details of running a business, I was taught to always build in a core transaction that is the basis for the revenue. You then budget your expenses based on the actual costs and profit from a single transaction, and scale based on how many transactions actually occur. If your sales slip, your budgets decrease, and you may need to let people go, or take other actions to scale down... but the business itself is still running at a profit. The scenario of having to scale down sucks. But it doesn't have to move you into the red.

I admit that not all business plans can follow this philosophy, in particular if you are of the thinking to get traffic now and monetize later. And I'll work for people running companies who don't follow this philosophy, but I won't run one myself.