A Tech Startup doesn't have to be a SCaleup
By Nathan Mullings
A Tech Startup Doesn’t have to be a Scaleup
In the last few years, the number of people trying to start a tech startup has increased dramatically. I am one of those people. However, the issue is the percentage of these people who feel the only way they can succeed is by raising money from investors, selling part (or a lot) of their company so they can use the money to grow fast and become a massive global company. The question is… Why?
When I ask founders why they are raising money, I usually get one of a few answers: “We need to hire a team and we can’t without initial capital” or “If we don’t grow quickly, we won’t be able to service this huge market and the opportunity will be missed” or “we won’t be able to cover our initial costs and we’ll die” or “ we want to help as many people with this problem as we can, and change the world with our impact”. I get other answers but these are the main ones. They are good answers, without context. With context, they don’t always work.
I think, if being truthful for some founders, the answer would be “we want to grow into a large company quickly so we can make lots of money sooner, rather than later, without the pain of growing the company with little resources”. Now this is also a fair answer. However, the trade of initial pain versus future pain. May not actually be the best trade for you, or the company.
Let’s take a look at the pain trade off.
The pain of not raising money –
- You have no money to hire employees to do the work that you can’t do
- You can stagnate and feel like you’re going nowhere, or moving slower than you should be.
- There’s less outside pressure and expertise from investors.
- Inability to pay for your own personal expenses
- Less likely to grow into a large company and make lots of money.
- Less likely to have the global impact you’re craving and only solve this problem for a smaller portion of the market.
- Less money to spend on sales and marketing, also contributing to moving slower.
- You’re not sure anyone cares as there is no backing from investors to give you that status boost.
The pain of raising money
- You now have all this money you’re not sure how to use, and the opportunity cost of every decision is huge
- You now have an obligation to grow your company uncomfortably quickly, which has a high chance of killing it.
- The objective is now to grow or die trying, and most startups die trying.
- You have far less control over the company you created
- More likely to lose touch with solving the initial, because you’re compelled to build you’re company over refining the product.
- The market needs to be big enough so you may end up solving a much smaller problem, but for lots of people, rather than a huge problem for a smaller number of people. You may end up having a smaller impact this way (depends on how you measure impact).
There are other pains. Maybe I’ll go through them in a separate post. Here though, I want to go through possible solutions for the pains of not raising.
If you need to hire employees do the work that you can’t, you’ll just have to learn to do it yourself. If that’s too hard, you’ll need to bring them onboard as a cofounder, for equity. If that’s too hard you should start with something simpler. Rinse and repeat this until you have a solution, and if it’s still too hard…. Maybe you’re not the best person to start this company.
You will likely stagnate. But there are other ways to move fast without raising money. There are cheap ways to move fast such as automating certain processes, however the best way to move fast is to make decisions quickly, based on key performance indicators, and adjusting as soon as you know something isn’t working. It’s much harder to admit false assumptions if you’ve raised money under that premise.
Without investors or a board, another way to get outside pressure is to surround yourself with people who will hold you accountable for the success of the company, that could be mentors, friends, co-founders, family, founders of other companies etc.
On global impact, many founders aren’t working on something that is going to have global impact. On money, you can still make very good money, and in a much more stable and long term way, without outside investment.
No money for sales and marketing? An opportunity to create a product or service so good that your customers or users want to do your sales and marketing for you. OK fine, easier said than done. There are other techniques to make yourself seem bigger than you are such as automating processes again, creating partnerships, being really good at content marketing, and being smart about creating awareness.
People will feel a lot better about themselves if they raised money. Its a form of validation to have investors believe in you and your idea. People who raise money should be proud about that. However, the best validation, is people using your product.
These are the things I’d like to see more founders thinking about, rather than thinking they need to get outside investment by default. Raising money is time consuming in itself and brings its own problems, which some founders may be less equipped to deal with.
It’s almost always far more impressive to see founders doing great things with fewer resources, which will naturally lead to a more sustainable company. Founders quickly forget their greatest strength is usually that they are a small, agile team, passionate about solving the same problem.
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- The Unjust Attack on Tech
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- Using Tech to Build Internal Tools
- What came first, the Product or the Company?
- A tribe of toolmakers