Start-ups: Money Matters
All founders eventually face the dilemma of choosing how to get their start-up off the ground – fundraising or bootstrapping their venture. Each choice has its own unique advantages and disadvantages, factors that can have long-lasting effects on the vision a founder has for his company.
What should founders keep in mind while deciding how to fund their company? Read on to find out might be the best option for you.
Fundraising
External funds help companies move at a quicker pace, making them far more responsive to changing environments. Decisions can be taken quickly, without having to worry about the source of funds, which can include initiatives in marketing, branding, packaging, distribution and even enhancing product quality. Today’s marketplace is constantly evolving and cash in the bank can help start-ups stay one step ahead of the curve.
Access to capital can also help push a company from being a small & medium business with a few hundred customers to a large enterprise with thousands of customers across the world. This can be achieved not only through the injection of much needed funds but also through the validation and credibility big name investors provide to emerging companies. This in turn provides access to a large pool of experience and talent, giving companies an edge over their closest competitors.
There are, of course, certain aspects that can influence founders away from external investors. Loss of control over the company is a considerable concern along with potential involvement of investors in day to day decision making that can affect the culture in a fast-growing start-up. These concerns often lead founders to bootstrap new ventures. Why? Keep scrolling…
Bootstrapping
Well, first off, bootstrap only if you can afford to. There’s not much of a choice if you can’t afford to build a business yourself and need outside money to do so. However, if you can bootstrap it – why not?
Building a venture using your own finances is definitely risky but it also makes founders scrappier and more creative when it comes to spending money. The minimal access to capital provides teams to focus on an crafting an ideal revenue model, bringing in money to sustain the company and potentially achieving profitability quicker.
Founding teams are also forced to make the best of what they have, learning new skills along the way, instead of hiring external (and expensive) talent. Building real-world solutions to real-world issues without spending an immense amount of time and money is a skill that can only be learnt not taught. Read my post on how to effectively scale your sales team.
Most importantly, teams operating in a bootstrapped environment become one with not only each other but also with their customers – relying on their business and feedback to fund their next pay check. Head-on contact with customers helps teams build a product from the customer-up, the most crucial aspect of any business. (Related post: Why EQ vs IQ should play a major role in your hiring plan).
In any scenario, ensure that your sales team is designed in a manner that best suits your growth trajectory, scaling along with your company. Click here to find out how to make that happen.
To summarize, fundraising gives you the luxury of not worrying about where the money is coming from, freeing up time for founders to focus on evolving their business. Bootstrapping, on the other hand, teaches you how to handle the ascents and descents of any business, preparing you for anything the future may hold.
At the end of the day, there are a myriad of other factors such as technology, competitors, industry and risk factors that will determine how best to keep a founder’s dream alive. There is no right choice, only a well-informed one.
Good reads:
Intuit: How Does the Difference Pay Out?
Mashable: Pros and Cons of Raising Money
Vijay Shekhar Sharma, Founder of Paytm, on Bootstrapping Vs. Raising Funds