You have a brilliant idea, and you have a few talented folks who are helping you bring that idea to fruition. There’s a big problem, though: money. You and your cohorts have some in the bank, but is it enough?
I’ve been fortunate enough to build, launch, and run not one, but three software startups. So, I’ve also—unfortunately—experienced the overwhelming need for funding. And as I’ve written about in a previous article, it can be hard out there for an Arizona startup, especially when it comes to finding money. But if I can uncover money in a desert, I’m fairly certain there’s money to be found just about anywhere.
Still, not everyone wants money in exchange for a share of their pie. I launched Axosoft, an agile project management software company, in 2002. It was nearly impossible for me to find investors (Phoenix has definitely grown leaps and bounds tech-wise since then), so I resolved myself to grow the company organically, which means my company didn’t grow until the revenue was there to support that growth. My crew and I lived the true bootstrapped life.
Alternatively, I launched Pure Chat, a live chat software for small businesses, in 2012. With Axosoft, I didn’t focus strongly enough on market share, and ultimately, that’s okay. I developed an organically grown, profitable company. It’s not the biggest, but our customers are loyal and our product is incredible. But live chat software is a much different animal than an agile project management platform. In five years, just about every business will have some form of live chat on its website. I want Pure Chat to be the obvious choice. Thus, we don’t have the option to grow slowly and organically. The only way to grow fast is with money. That’s why Pure Chat took on $1.5 million in seed funding this past April.
Of course, getting that $1.5 million was no easy feat. I misguidedly thought my track record would mean something to investors, but alas, the investor climate in Arizona doesn’t rely on reputation alone—if at all. So, if you’re thinking about taking on investors for your startup, let me give you a word of advice: prepare, prepare, prepare. Know your metrics backwards and forwards; find out what matters to them. Case in point: I kept pitching investors like they, too, were entrepreneurs. Big mistake. ““Oh, we’re not trying to optimize for revenue right now” is not what investors want to hear. Silicon Valley might lead you to believe otherwise, but investors care big time about unit economics and scalability. Moral of the story: Talk to investors like investors—not entrepreneurs. Ultimately, I secured seed money. We immediately kicked the tires and lit the fires, and it’s been solid growth since.
So, which route—bootstrapped or seeded—is right for your startup? The answer to that question depends on a lot of factors, including your product, its market, the market for potential investors, your financial state, and your definition of “bootstrapped.” (Remember, there are angel investors and government grants up for grabs, too.) Is your startup like Axosoft with a product that has a dependable, long-term market? Are you and your team comfortable depending solely upon the resources you have and the monetary/market gains you’re currently making? Can you stomach the stress of cash flow crunches?
Or, like Pure Chat, is your market fast-growing and ripe with competition? Does it seem like there’s a quickly-closing window of opportunity associated with your product? Do you need to grow faster or can you not achieve your goals with the resources you currently have? Do you have the time—and boy, does it take time—to pitch investors? Are you comfortable giving up a chunk of ownership in the name of growth? And, of course, are you comfortable with answering to a board of directors and providing regular investor updates, good or bad?
All of these questions point to a requirement all startups must fulfill regardless of which growth path they choose. You must have a business plan with documented goals; steps to achieving them; details about the market, audience, and competitors; what problem your product solves and how; and what’s your exit timeline. (Yep, I said “exit timeline.” Remember, in order for investors to make money, they need their investments to have exit events.) A business plan (in whatever form it takes) is your best bet for intelligently determining what growth strategy is right for your startup.
When you compete in sports or school, typically the best team, athlete, or project wins. But that’s not always the case in the startup scene. So much of success depends on strategy—which company makes the right move at the right time. Strategy requires forethought. More importantly, it requires owners to know themselves and their businesses. You have to see not only the forest, but the trees, too, and vice versa. Never assume that the path of unicorns or a local tech darling is the path for your business. Do your research, make a detailed plan, and choose the path that’s genuinely right—and smart—for your company.