Over the past year I have become frustrated with how a startup and an entrepreneur is being portrayed and where the focus has lay in this space. It seems to me that we are spending most of our time teaching young entrepreneurs that the way to build a successful business is through raising capital. I strongly disagree with this.
Yes some businesses do require capital, absolutely, however this is not the foundation of a successful business and it certainly shouldn’t be the number one focus when starting out. Most importantly a business requires a product or service that someone is willing to pay for. If no one wants it other than your friends and family it is not going to survive. After that it actually doesn’t matter how much someone wants your product or service, if you don’t know how to run a business. This is where boring words come up such as cashflow management, systems and procedures, sales and marketing (I don’t think this is boring but it is amazing how many Founders struggle with this), and human resources.
Recently visiting an Incubator, I was shown a wall of awesome startup logos that looked like they had come straight from Silicon Valley. Unfortunately, more than 70% were no longer in operation. They had failed. However, there was one big success story on the board. I was keen to hear about what had made this particular one stand out. The response was somewhat surprising although it represented exactly what I believed and knew to be true. The one success story on the board was the only one who had grown their business without capital. They had taken the traditional business model. They created a minimum viable product and started making revenue from that small product. With that revenue they continued to develop the product leading to more customers. As the revenue grew they could afford to build it out even more to have the capability they always envisioned for it. With that they won the A client they had dreamed about and they were well and truly off and running!
I know that some businesses require more money to get off the ground than others. However, I believe there is more work we can be doing as entrepreneurs in startup before we start spending our time and energy on learning to pitch a business we haven’t even got to know yet. If we don’t know our own business how do we know who we want as our investor, what we need the money for, or where the major gaps are in our own skills. We need startups to take the time to date their own business and learn the craft of running a business (sales, finance, hr) before giving away their equity.
I would like to see less media around how much money these startups are raising and more focus on the ones that have reached their 5 year milestone and actually have revenue or even better profit…although I know that would lose its sexit appeal!