March 5, 2018

VC funding is not the holy grail for all startups

Recently Aytekin Tank, founder of JotForm wrote a compelling piece titled, Why startups are dying left and right.” In this article, he shared the less glamorized view of entrepreneurship where he demystifies the experience. The slow, patient road, at times, bootstrapped, always tough, riddled with lessons from failure and prioritizing profit over growth.

I shared this article with the community at ustwo Adventure. It was encouraging and enlightening to see some of the common strands that resonated with this collective of ‘less glamorized’ entrepreneurs. In this article, I have shared the top 3 of these golden threads that tie us together as a community.

1st Myth: The apparent desire startups have is to get funded. As if that’s an end goal.

Truth: Not getting funding allows you to focus on building products & services customers love, not chasing exits investors love.

Any entrepreneur that has experienced fundraising will attest to the fact that it can be a hugely time-consuming activity. Often taking as much as 80% of the founders time, chasing cold leads, following up on warm leads and having countless meetings that end up amounting to nothing. The primary goal of the founder shouldn’t be to secure the next round of investment but instead to focus on solving customer problems and adding value through the product/ services they provide.

Founders often face an uncomfortable conflict between solving customer problems and securing the next round of investment, made doubly problematic as investors require growth metrics to be met in a short time frame before committing- often at the expense of profit.

2nd Myth: What matters most are growth metrics, valuations, and the next fundable milestone.

Truth: Real businesses focus on customers, revenue, and profitability.

I love the Indie.VC philosophy of “ Real businesses want to stay in business, not run for the exit.” So often this message has been lost as business models have been relegated in favor of growing month-on-month customer numbers at all costs (even if it means promoting fake news!).

The thing I love most about community-based shops like your local bakery, hairdressers or florist is that they have no choice but to be real businesses. These type of businesses make products and sell them for a profit. Sounds simple, because it is!

Some businesses do need funding to get off the ground, for example, hardware businesses and certain software startups too. Founders over-index on VC and don’t often appreciate the full range of funding available such as:

  • Grants & Competitions
  • Friends & Family
  • Crowdfunding & Equity Crowdfunding
  • Government-funded Startup Loans & Bank Loans
  • Family Offices
  • Angel Investors

3rd Myth: I have to quit work and build my startup full time to be a real entrepreneur.

Truth: Growing your side-hustle while working a 9–5 provides a financial cushion and patience to think deeply.

Profits afford you to take calculated risks within your means. There are several stories of entrepreneurs who worked until they could afford to pay themselves from the income earned through their side hustles. Just last year my brother quit his job as an Accountant to go full time and run his music discovery and distribution platform, Mixtape Madness, seven years after inception. Often at the start, it is really hard as the pay will be less than your 9–5, which could mean doing part-time work to provide financial stability. However, it is so satisfying working both hard and smart (as they are not opposites) to pay yourself what you deserve and do meaningful work you love.

Side note: Being an employee is not less of an achievement than running your own business. The risk of this glamorized world of entrepreneurialism is that those of us working as employees may feel undervalued or subordinate. But if everyone wanted to run their own business, who would be left to employ? Let’s not forget the skills, financial gain, and relationships you can build and maintain while working for someone else.

Thanks for reading.

Originally posted here. 

Andy Ayim

Andy is Managing Director of Backstage Capital London. Previously a Product Manager who has traveled and worked in over 40 countries in the last five years. He is passionate about telling stories about founders & investors from diverse backgrounds and improving Tech Inclusion.

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