Let’s start with the basics.
What is business? It’s simple really. It’s flow of money. Money in vs. money out. If over time, you make more money than you spend, you create a sustainable business. If you don’t, your business goes bust.
That’s why it’s rather surprising that the last decade or so has seen a boom in startups/ entrepreneurs who are solely focused on raising capital. Their business cycles go from one funding round to the next. All their efforts are targeted at picking up growth tactics, analysing term sheets, and understanding customer acquisition costs, just to be prepared for the next wave of fundraising. The prevailing belief is that venture capital is a precursor to success. What is even more surprising is that there are investors in the market, who are willing to buy-in to this model.
All this has led to a prolific fund-raising culture among founders, which is unsustainable in the long-run.
Interestingly, it was not always like that.
Earlier, people used to find solutions to problems. Entrepreneurs built real businesses, generated real revenues, and had real clients.
Instead of the prevailing scenario where too many startups orient their businesses around raising capital and asking for money to solve problems; earlier founders used to solve problems and then ask for money. Entrepreneurs used to believe that you didn’t need money to start a business or build a product. Rather, you only needed money to scale a business or make a better product.
In fact, a closer look at lots of successful companies – some known and some not-so-well-known – around the globe illustrates that making progress without raising money is the best way to get a venture capitalist interested in your company. Most of these companies raised money after proving that their success is a foregone conclusion. That is why when they eventually raised money, they did it on their own terms and had the luxury of picking their investors.
Examples include GitHub, which grew to become the world’s leading software development platform critical for the technology ecosystem before raising any capital. Or the Australian software company Atlassian, which bootstrapped its way to a US$4 billion market capitalisation.
Companies that bootstrapped their way to success VS Companies that raised millions of dollars and lost it all
The million-dollar question is, how does an entrepreneur switch his focus from raising money to building something people would want to buy?
The ultimate validation of a successful business is to have people buy your product. And this is precisely where we start in our five-step-solution of making money instead of raising it:
Step 1 – Identify a problem. Find the solution. Implement it with passion.
Or in other words, identify a need. Cater to that need. Make a detailed outline with strategies from start to finish on how your product/service will solve that problem. Ensure your solution doesn’t require a crazy amount of cash.
Step 2 – Identify your competitors, if any.
If there are other companies engaged in solving a similar problem, do a competitive analysis. Clearly mark your USP – unique selling proposition, as compared to these companies.
Step 3 – Build a great team, and surround yourselves with trusted advisers/ mentors.
No two ways about this. Starting a business is tough. You will have ups and downs. A great team, trusted advisers and mentors, who bring positivity and keep you grounded with practical goals, is what you need the most. Invest in people before you invest in your business. You and your team will do wonders.
Step 4 – Bootstrap.
The time will come when you will need some money. Not much. Just enough to get going. Bootstrap then. Michael Dell, William Redington Hewlett and David Packard, Bill Gates -all of them did it. The more you bootstrap to achieve good market capitalisation while starting out, the easier it would be to get capital to scale up later.
Do always align your capital to your milestones. If need be, share office space, use borrowed or second-hand equipment. Remember, cash is sacred when you start a business.
Step 5- Finally, and most importantly, get some customers. Then get some more.
In many cases, you can sell products before you even produce them. Try subscription models. Identify what marketing and sales tactics are working. Get customer feedback. Improve on your product/ services. Once you sell to your first few customers, use that money to acquire more customers.
Our advice is not to bootstrap a business in perpetuity. As mentioned above, raise money only when you scale up, or are building a better product. Just remember that you don’t need to raise money to realise your dream of becoming an entrepreneur.
Mix passion with practicality. Create something tangible. Build a real business!
Related Article: 40 tips for starting a business
Focus on generating money. Leave the rest to us.
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