Why a Venture Funded Business Shouldn’t Be a Guide for Small Business Startups

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Often times we see the glamour of venture capital backed, billion dollar (to be) companies and wistfully wonder if we should follow their routes. Some of the things they’re doing are good — we can learn from them. But other things might not be so good.

The New York Times writes about Jet, how it’s prepared to lose money for five years and its plan is to sell memberships and make its money that way. I guess it COULD work but it’s not a model that small businesses should follow — losing money for years and making money NOT with the product you’re selling.

There’s only ONE Amazon.com.

Intense competition in the delivery space may be prompting such offers. According to one venture capitalist, “some of these companies are forced into making moves that they know don’t make long-term economic sense, but they could make short-term economic sense if they end up winning the customer’s loyalty.”

Small business owner, remember, you’re not a “dot-com”. Make smart investments in your business. Follow the advice of Norm Brodsky in Inc Magazine, Joe Connolly of WCBS Radio and the writers in Smart Hustle Magazine. Make a product you can sell and make a profit from.

Even my distant mentor, Marcus Lemonis of CNBC’s The Profit, believes in making money from what you sell — making a PROFIT.

For those entrepreneurs who have BIG ideas and need venture capital for seed or growth funding — GREAT. However, spend your money wisely and ensure the FOUNDATION of your business is built on simple and solid principles, not on “funny” money.

Startup Owner Photo via Shutterstock

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Small Biz Technology SmallBizTechnology.com is part of the Small Business Trends Publisher Channel, and is all about helping “regular” small business owners – those who are not technically savvy – know what technology they need to boost productivity, save time, save money, increase revenue and boost customer service in their business.

3 Reactions
  1. Could. Not. Agree. More.

  2. I completely agree that there is no one model for small business startups. Raising money isn’t right for every person or every business. The vast majority of businesses do not raise angel or venture capital; many are able to get loans, or tap into their customer base and get them to prepay for products, or fund growth off revenues. But if you have solid reasons to believe there is a bigger opportunity you could go after if you had more money for professional staff, better marketing, or improved technology, then I say don’t be afraid to go after angel or vc dollars. Women entrepreneurs have tended to start their businesses with half the capital men do — having the runway of a year of operating cash in the bank can make all the difference as you figure out the road to profitable.

  3. Too often, it is assumed that an entrepreneur wants to build and then sell the business that they have started. This matches VC and angel funding models that require a cash exist (preferably sooner than later). However, it does not fit an entrepreneur who wants to build and hold – to realize their mission in life. There is no natural or arbitrary cash exit that readily matches with angel and VC funding.