Starting a business is hard. The sheer amount of hard work that goes into building a startup is something that even the most experienced of us find consistently difficult, and I sometimes wonder if the increased access to capital has actually made the new-business journey even harder.
Reason being? While it’s true that work-ethic will take you very far, it’s also true for the countless competitors you’ll come across in the market. In a world of software-based startups, wherein gaining the leading edge over rival platforms is a game of inches, it’s not always the best who wins. Often it’s the company that raises the most capital.
The first foot-in-the-door, the company that can use their raised capital to attract the right people and establish a market presence, can often trump a superior product with their access to the target-audience alone.
Just look at the taxi-app companies that tried and failed to establish a market presence before Uber.
In many cases, by the time businesses are actually built up or approaching a salable product, the original founder(s) no longer owns a majority share of the company. Harvard referred to this as “The Founder’s Dilemma” wherein the majority of founders find themselves pressured out of the CEO role within only three years.
Here’s a great article in the Harvard business review. It’s a real eye-opener, and if you haven’t read it, you should:
I’ve seen many of my mates build extremely successful businesses that provided them with a great life and enabled them to give back to the larger community, without needing to chase the unicorn dream. These businesses are often worth significantly more than what their shares would be if they had built a larger company and raised a load of capital. Also, they’re in charge of their own destiny rather than having a table of preference shareholders at the helm.
As I’ve mentioned in previous articles, I’ve recently looked back on my experiences in raising large capital for businesses, and have decided to go back to the basics in my approach to startups. It’s a large part of the reason that I invested in and joined Patona. Using a simple, profitable business model that enables long-term founders has been so refreshing Where a formal board meeting is sitting down for a beer with two mates and hashing out the possible.
As a long-term entrepreneur, it just makes sense and enables me to get things done. Especially in 2020!
Before risking your foundership in the business and placing pressure on the business from capital-raising, consider alternative modules that can fit your business while enabling you to maintain your control of the journey!
Business models that can make a profit straight away and will grow quickly often aren’t particularly world-changing or exciting. While you can find shareholders in some cookie-cutter enterprise, it’ll usually be forced into a cookie-cutter approach by concerned shareholders. The lifecycle of a founder is largely akin to the tortoise and the hare. Everyone, including my past self, wants to go fast and big without a clear understanding of what that means in the long-term.
Look at your business model, and if you need a lot of capital to get it up and running, reconsider launching it as your first business. Try models that can be started with minimal cost first. If you’re thinking of launching a software-driven company, consider a service-based offering in the same field in order to accrue revenue, knowledge, industry connections & insight to take into your larger project(s) with some capital on top of this strong foundation.
Throwing money at the problem might make you move faster, but it can just as quickly move you and your business far off-course and even worse slow you down if you don't have product market fit.
That being said, here’s my advice if you are thinking about starting a company: