Honest Advice on Funding your Startup
If you’re an entrepreneur it’s hard not have fallen in love with HBO’s Silicon Valley. It’s arguably the most authentic look at the trials and tribulations that we startup founders have to face on a daily basis – despite being satire. While I could go on and on about how this series speaks the truth, one of the most interesting topics discussed on the show is how the fictional company, Pied Piper, receives funding and the effects that it has on the team.
As the series demonstrates, funding is both a blessing and a curse. While it’s vital that your startup raise money to help it scale, it also comes with cons like losing control over your company to potential investors.
While there are plenty of reasons why self-funding is popular, founders have realized that by going in this direction they’re able to retain control of their company and be more careful with spending. Self-funding also allows them to be more creative since they have to think outside of the box and it gives them more time to work on their business, instead of preparing and meeting with investors.
Sweat Equity: Bootstrapping 101
With bootstrapping it’s important that you start generating revenue as soon as possible. Guy Kawasaki suggests that you must focus on cash flow, not profitability though. “The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine,” Kawasaki writes. “The reality is that you pay bills with cash, so focus on cash flow.”
“If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that takes twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.”
Another popular train of thought to follow is that of The Lean Startup written by Eric Ries. The basic idea is to spend the least amount of time and money developing an MVP (Minimum Viable Product). Once you have a product built release it to the market. The market will decide whether or not your product or service holds real value to your customers. If it does, you can look to fully develop the rest of your product or service. If the market reacts negatively, you can make the decision to either make the necessary tweaks or scrap the idea all together. While it’s never easy for a founder to let go of their “baby”, it is most definitely worth doing considering the amount of time and money saved.
Most importantly, keep your costs as low as possible. For example, you don’t need to purchase or rent an office for the time being. You can hire a remote team of freelancers, which also reduces employee expenses so you don’t have to hire them full-time, and work from home until.
You should also take advantage of free tools like;
- •Google Drive for sharing and collaborating on files.
- •Skype and Slack for communicating with team members.
- •Insightly for project management.
- •Zenefits handles all of your HR needs.
- •Revcontent to increase your website traffic.
- •Due for financial tools and payments. (personal company)
That is by no means an extensive list. These are just a handful of free tools to help you get started.
Finally, if you do need to secure more funding, there are other ways to raise money without dazzling investors. You can turn to your friends and family, obtain grants, enter a contest, or work a side gig until the startup takes off.
Bootstrapping isn’t anything new either. Steve Jobs and Steve Wozniak bootstrapped Apple in its early days. I’m sure no one would argue with how successful that turned out for them.
The Importance of Traction
At some point, you will have to do some sort of funding for your startup if you want to scale properly. And, that’s when traction becomes your best ally.
Danny Wong of the Young Entrepreneur Council (YEC) in Forbes argues, “the most important thing is traction (how far you’ve come on your own), whether it’s six weeks, six months or six years.”
Crowdfunding is also a great way to raise funds. It allows you to raise non-binding capital while acquiring your first wave of early evangelists for your product or service.
In most cases your company will get to the point where a large funding round is required in order to take your start-up to the next level. Until then however, stay lean, mean, and bootstrap your way to the top!