When all Else Fails… Just Build the Business
Business tips to help you succeed
Many entrepreneurs face a tough choice when starting or growing their business: whether to raise capital from investors or to rely on their own revenue and bootstrap. Not being properly capitalized creates many challenges, such as limiting the speed and scale of the business, missing out on the opportunity to build a complete product that has real value in the marketplace, keeping talent and the team together, or having enough runway to prove out their go to market strategy. A founder may experience monumental shifts in the market when bootstrapping that impact the business, their projections, and budget available for the product or services without being properly capitalized. Finally, many first-time founders simply don’t have the runway and savings personally to outlast the bootstrap life.
Raising capital can help accelerate the growth and expansion of the business, as well as provide access to valuable resources. However, taking outside investment also comes with its own set of drawbacks, such as diluting the ownership and control of the business, increased pressure and expectations from the investors, taking a great deal of time out of your day, week, month to grow your business, or having to repay the debt or share the profits. In addition, the complexities of raising capital are incredibly challenging for first-time founders. Even if they have raised funding before, a tough market (like today) can put incredible pressure on a founder or startup while trying to grow the company.
Today’s market is tough – really tough. Money hasn’t disappeared but it has absolutely found new places to park. For example, many investors prefer low-risk opportunities to park their cash in safe Treasury bonds giving them 4-5% in annual returns without the risk that comes with investing in a startup. It’s beyond complicated right now to raise money and startups are competing with tens of thousands of others. In fact, there are more startups raising money than ever before in history according to the SEC and Small Business Association.
What is a startup and a founder to do? Bootstrap or raise?
The quick answer before you read another word is always this: if you can generate revenue, do that first, ALWAYS. Focusing on revenue can help maintain the independence and autonomy of the business, as well as validate the market demand and customer satisfaction.
Generating revenue is one of the most important and rewarding aspects of building a startup because it validates that your “great idea” is actually needed. Real customers with real feedback (positive and negative) provide data and market validation that may fundamentally shift the very direction of an early-stage business, including how a product is built. Raising two million dollars from early-stage VCs to “validate” an idea is an expensive science project. Selling an early-stage product or MVP to a small, niche customer base is a cost-effective way to prove whether the market needs your product and will pay someone to use it.
If you are the founder reading this, everyone wants to give you advice. Take advice from your advisors, your investors, your team, and those who have started and exited businesses before. Someone who has an exit or two under their belt understands challenges that few in this world can relate to. An investor, customer, or advisor who has hired, fired, and had to maintain payroll for many employees and contractors knows the real challenges of building a business – not just asking people for their money. Consider talking to them before you make decisions such as raising capital.
If the decision has been made after proper planning and feedback, make sure you are ready to raise capital and truly ready for a “yes” from investors.
- Build a compelling pitch deck with an industry standard format, ask for tons of feedback on it
- Prepare a long list of potential investors and people you know that you can pitch to
- Ensure you have good advisors and legal in your corner to structure a deal or contract
- Project your cash flow/expenses to be twice the amount/timeline you think is needed
- Know how to measure your revenue, KPIs, and growth
If you need more help, consider reaching out to our team at Raze and they can show you the powerful options behind getting ahead of this activity and addressing the pain points commonly felt when raising money. We would love to help!
What if you don't raise a dollar?
It either means you really may not have an investable business or pitch prepared, or you are just too early. What does a founder do? Simple – use your own money and time and prove that your idea and business is one to last by going out and building it. An interesting turn of events happens when you build your business and have revenue – people start asking you if you are raising money. That’s a great day and changes your perspective on raising capital.