Tips & Tricks

Why NOT to Seek Funding When You’re Just Getting Your Business Started

By July 28, 2015 November 12th, 2019 6 Comments
 

Many people seem to believe that to have a successful business, you have to take some kind of investment to get to where you want to be. I disagree. If you do take an investment (or multiple investments) to get your company started, there is nothing wrong with that. But I want to explain why I personally have never looked for funding in any of the businesses I’ve built.

If you’re trying to get funded, you’re not working on the business.

So far in my ventures, I prefer to focus on bootstrapping. My goal has always been to figure out how to make money from what I?m doing. If you’re starting a business and your first thought is ?I need to go raise money,? then instead of focusing on building a business, you’re doing everything BUT building a business. You’re creating slide decks, you’re creating presentations and you’re getting better and better at preparing a package of stuff that will look good to an investor. That whole time you’re not building a business! You’re basically just trying to figure out how to raise money.

Whereas the entrepreneur who is bootstrapping is spending all that time figuring out how to actually build a business that makes money. Learning how to be an entrepreneur isn’t the art of raising money. It?s the art of learning how to make money by providing value to people.

There’s a right time and a wrong time to seek investing.

The wrong time is when you’re still trying to figure out your business model. You’re just hoping that a lot of cash will enable you to figure it out. The right time is once you’ve figured out your business model and you have a model that can replicate itself. This is when you can confidently say you are getting a solid ROI and you simply need fuel (more money) to scale your business.

If you are making a positive return on every dollar you put in, and more money will help you reach your goals faster, that?s a great time to seek outside funding. In this scenario, more money should only be able to get you where you want to be sooner rather than later.

I think you’re in a much better position when you’re able to say you don’t need the money to grow but you just realize that adding more money is just going to help shorten the time to get where you want to go. Also at this point, you?re more likely to get favorable terms on an investment agreement and you’ll end up owning a lot more of your company. You?re less desperate, and you’re more likely looking for somebody who?s not just going to provide you with money but who also may have strategic expertise that can add value to your business.

Taking an investment means giving up part of your ownership.

When you take an investment in exchange for equity, you are giving up part ownership of your company. I know that sounds obvious, but it can be more problematic than you think. A lot of times you are not just giving up ownership in terms of money, but in terms of the say you have when it comes to making decisions that affect your business.

I believe the face of Amazing.com would be different if we had taken funding initially rather than bootstrapping. You have a lot more hands in the cookie jar ? people trying to tell you what they think is best for your business because they want to get value for their money now rather than later. Whereas at Amazing.com, we?ve been able to take our time and figure things out more organically. We?re also able to talk with our customers and think longer-term. By being able to do that, I think ultimately we make better decisions.

Having full ownership positively affects our customers.

We can continue to make decisions based on keeping our customers? best interests in mind, rather than the interests of an investor.

We’ve been building this business over time and we’ve seen how it?s evolved. With that, we’re able to have a clearer vision of where we want to go and ultimately, that is best for our customers.

Examples of highly successful bootstrapped companies:

Tableau Software: Christian Chabot, CEO and co-founder of Tableau Software, said taking venture capital is like having a loan. ?Do you feel brilliant and motivated after you take out a big loan?? He and his co-founders avoided venture capital at all costs during their early days and managed to break through the $100 million revenue milestone in December and now has more than 700 employees after nearly nine years of doing business. (Forbes)

PlentyofFish: Markus Frind, founder of PlentyofFish, grew his site to hundreds of million in revenues, investor-free. (Business Insider)

TechCrunch: Founded by Mike Arrington and Keith Teare in 2005, TechCrunch became one of the most-read tech websites in the world. When AOL purchased it in 2010 for ~$30 million, Arrington reportedly owned 85% of his bootstrapped company. (Business Insider)

Like I said, for many companies, there is a wrong time and a right time to seek investing. Many companies start with bootstrapping, prove their business model, then take outside capital. Take these examples, provided by Business Insider:

Nasty Gal

Braintree

GitHub

Indeed

Behance

Thrillist

One of the reasons I?m so passionate about bootstrapping is I did it myself. Not too long ago I was in pretty serious debt, but I discovered a remarkable business model that enabled me to build a multimillion-dollar business all on my own.

This business is built on selling physical products online. Basically, if you can identify the right type of product to sell, you can build a highly profitable business.

6 Comments

  • vinh says:

    i really like your post,very helpful and straightforward

    • Samue Jubert says:

      Your post is so true. When you are out trying to raise money/capital for a venture your entire focus is on raising the money not focusing on generating money. The Amerizing.com is a remarkable way of learning how to generate revenue while learning a system. Then when you are ready you can show the potential investor what you have done and doing thereby controlling the terms of what you want for their participation to help you achieve your goal faster.
      Thank you Matt and Jason for showing the way.

  • Irene says:

    Thank you Matt. This is a great article.

  • Solomon Agbeibor says:

    Very educative. This article is an eye-opener.
    Thank you Matt

  • Marina Furlough says:

    Wow!
    Thank You Matt! :))

  • Peter MacDonald says:

    Serious wisdom there.

    Thanks Matt

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