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Archive for February, 2010

The #1 Strategy for Raising Money for Your Startup

February 20th, 2010

Don’t Need it.

Seriously, that’s the entire strategy - and it’s the only one that works.

I was going to keep this blog post at 3 words long, but since blog posts are supposed to be longer than 3 words, I’ll take a few extra words to elaborate… 

Investors smell “need” like dogs smell fear.

The problem with most entrepreneurs who are caught in the pitch cycle is that they teleport their strong ”need” for the money from a mile away. They “need” the money because they can’t seem to execute without it, they “need” the money because they have grand visions that require lots of resources to bring to fruition, they “need” the money because it’s the only way to keep the lights on while things fall into place. I’ve been there, I’ve tried this approach - it’s a complete waste of time.

Instead of setting up a “need” for money, start making things happen without the money.

Meanwhile, there are other entrepreneurs who make it happen without investors. They find a way, they execute with a lean and mean team, they start proving the business model, they deliver milestones - and open up doors for the business on their own terms. Then as the business starts to succeed in its own right, they realize they:

Don’t Need the Money.

And this is the best time to talk to investors. If you can look an investor in the eye and tell them with 100% integrity that your business is going to grow with or without their money - then they will want to put their money in the business. I’ve been there, I’ve had the 100% belief (because it was based in reality), and I’ve used this to raise money that helped take a business that was already on a fast track and put it on an even faster track.

Author: Jeff D'Urso Categories: Startups Tags:

Don’t Eat the Goose

February 16th, 2010

Despite how applicable the goose / golden egg metaphor is to startups - there is a distinct lack of goose related articles in entrepeneurial writings, so with this post I’m going to try and pick up the slack :-)

At its healthiest, the relationship between entrepreneur and startup is the same as the one between the farmer and the famous golden goose (disclaimer: I don’t actually know anything about farming except what I’ve learned in my son’s popup books). The goose starts out small, gets care and feeding, lays small golden eggs, gets more steady care and feeding - and over time the relationship blossoms until the goose is laying lots of golden eggs.

Unfortunately, in real startups, the entrepreneur and goose don’t always get along so well.

For most of the startups I’ve seen, there is an imbalance between the goose and the entrepreneur that supports one at the expense of the other, and makes it difficult for the goose to grow or the entrepreneur to keep their sanity. This usually takes on one of two forms:

1) Goose Abuse

Way back in my entrepreneur classes (Intro to Entrepreneurial Strategery or something like that) - I learned there are 2 types of companies: lifestyle companies, and growth companies. Lifestyle companies exist primarily to provide a lifestyle to their owner / operator. There is certainly nothing wrong with this objective - but if you’re looking to “change the world”, “rock your industry”, and achieve the big payout down the road, it is hard to commit to growth and lifestyle at the same time.

Beware though - lifestyle is tempting! When my first startup was making an extra $1,000 per month, my partners and I pondered how cool it would be to just “lease a Porsche” and continue to enjoy “being our own bosses” at our nice little lifestyle company.

Fortunately, we chose the growth path and were able to instead build our company to a $10 million sale within 4 years.

Eating the Goose

At its worst, “Goose Abuse” can seriously slow the growth of the goose (and cause shareholders / investors enormous frustration in the process). I’ve seen startups that were just beginning to hit their stride get seriously sidetracked by shortsighted owners who were more focused on pulling cash out of the company to support their lifestyle than re-investing the cash to grow the goose to its potential.

Remember - the goose may taste pretty good, but the eggs taste much better in the long run!

2) Abuse by Goose

The opposite of abusing the goose and diverting its resources to support your lifestyle is to endlessly dump resources into the goose without ever expecting it to produce profits on its own. Abuse by Goose takes 2 general forms - abuse of the entrepreneur and self-abuse by bloat.

Abuse of the Entrepreneur

The most important thing a startup needs to thrive is a profitable business model. That is where you put $1 in, and get more than $1 out. This doesn’t happen on day 1 - but it has to happen eventually or you have a money pit, not a goose. Unfortunately, some entrepreneurs are willing to pump all of their time and resources (and even worse - all of their friends and family’s resources) into a business where the profitable model never materializes.

Unfortunately, you can’t guarantee golden eggs will come out just by continuing to fund a failing goose (and there’s no point pitching investors at this point to feed your money-pit-goose either!)

Self Abuse - The Bloated Goose

Even if the abusive goose isn’t bleeding an entrepreneur dry, it can potentially be stunting its own growth through bloat. A profitable business model requires more than just revenue - it requires that more revenue comes out than cost goes in. Unfortunately, in targeting promising markets, some entrepreneurs scale resources too quickly (to “be ready” for the infinite demand they expect on day 1.)

A budding startup that could have been profitable with 5 developers - may be massively in the red because it hired 20 instead. The marketing campaign that showed promise - may not show enough promise to cover the cost that was spent too quickly.

It doesn’t matter how promising the market is, or how positive the revenue growth looks - if the goose was designed to be fatter than it needed to be - it may miss out on its opportunity to grow to a golden egg-layer because its burn rate was 2, 3, or 5x more than the model could actually support during its growth phase.

So keep your goose lean and mean!

Author: Jeff D'Urso Categories: Startups, Web Startups Tags:
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