Funding a startup can be a nightmare. Most entrepreneurs I have talked to in Pakistan talk about the trouble they face finding investors or other funding sources. Let’s be honest, you need money to keep your business running. How much money, and how soon you need it, that is the big question. Entrepreneurs have two options: self-funding (bootstrapping) or finding investors. Here’s why you should bootstrap first, instead of looking for investors.
1. Your Focus Shifts to Generating Revenue
When you don’t have a big chunk of change sitting in your bank account, you know you have to focus on generating revenue. You focus a lot more on what your product/service/revenue model is, instead of ain-bain-shaa-ing (explanation to follow) all over the place. You HAVE to build something that sells, and fast.
My definition for “ain-bain-shaa-ing”: Instead of worrying about how you should spend all the money – expanding the team, new office space, new gear for the whole staff – you’re going to have just one focus – make money faster. This means more time spent talking to customers coming up with a final product that works for them. Spending time with the product development team making sure it’s ready to go to market. Creating a marketing plan. All the while, keeping an eye on your funds to make sure you don’t run out mid-way.
Sure, it might be more stressful to know you only have X months of operating expenses in your bank account, but the long-term benefits of this will include: a product that works (and sells), a team that knows how to work under pressure, and a lean approach to spending.
2. You Save Time Otherwise Spent Pitching Investors
Pitching investors is not easy. It takes time and effort. Preparing for the meetings, the actual meetings, the follow-up. This is time that could be spent developing your product, focusing on your customer, and – of course – generating revenue. Once you’re not a seed stage startup anymore, it will actually become easier to find investors (more on that later).
3. You Aren’t Accountable to an Investor
Nothing takes the fun out of running your own business than having to answer to someone else. And that’s what investors are – someone else. Once you take their money, you have to give them an accounting of where – and how – it’s being spent. Depending on the kind of investor you have, you might end up with someone trying to micromanage every thing you do. At the very least, they will have their own ideas of how you can boost sales/revenue or input on product development.
5. You Have More Leverage When you Eventually Look for Funding
Consider two scenarios:
A: You’re a seed stage startup. You have a great idea. No final product and no customers. You’re looking for investors.
B: You’ve bootstrapped. You’ve got 1000 customers and a final product. Again, you’re looking for investors.
In the first scenario, you can absolutely find investors. It might take a lot more time and effort, because they would be investing based on your prior experience, idea and team. There really is no “real” data to back their investment on, right?
In the second scenario, they know your product works. You have the customers to prove it. You just need an investment to go from 1000 customers to 100,000. There is clear data and projections for revenue to base an investment decision on.
There are plenty of arguments why you should keep going after investors in your initial stages, and obviously plenty for bootstrapping as well. Eventually it will come down to what works for you.
Do the entrepreneurs out there have any ideas? Leave some in the comments below.