This quote from a U.S. News & World Report article by Jim Pethokoukis captures exactly why I can’t get excited anymore about outside money to fund any business of mine:
If all you know about starting a business came from reading the financial pages during the 1990s, you might think the process works like this: Think up a killer idea, write a business plan, raise money from venture capitalists, launch the business. “Then you pitch the money on a bonfire and hope there’s a company there before you run out,” jokes Greg Gianforte, CEO of RightNow Technologies, a business software company he founded in 1997.
Bootstrapping, i.e., funding a business from customer revenues and getting it to be self-sustaining as quickly as possible, is the right answer for the vast majority of businesses. Besides, it’s the only answer for most businesses. Only a tiny percentage of businesses will appeal to venture capitalists or angel investors.
The tendency is to want to go out and find money. You convince yourself that you need money to get going. When that happens you are focusing too much on what you don’t have, instead of what you do have. What you do have within your control is your ability to sell, sell, sell. Put your efforts into sales and getting money from customers in the door as fast as humanly possible.
I’ll grant you that there are select kinds of businesses — certain technology businesses with huge market potential, for instance — where outside funding is necessary. But those kinds of businesses are relatively rare, according to the Global Entrepreneurship Monitor — 38 out of 100,000.
Read the U.S. News article. Then read the writer’s bootstrapping backstory at the U.S. News blog, with an interview of Thomas Frey of the DaVinci Institute.
I agree 100%. My experience with venture backed startups is that the millions of dollars of funding actually encourages the wrong type of behavior. Instead of focusing on growing profitably (and all that entails), many VC backed companies focus only on growing. Period. After several years of impressive top-line numbers, they are then forced to address the profitablity question. The problem at this point is that the bad habits developed over the preceeding years are almost impossible to break. A good analogy would be raising children… if you spend the first 15 or so years allowing them to be “un-disciplined”, it’s almost impossible to change their behavior in the later years before you send them off into the real world.