I talk to a lot of startup founders. Upwards of 200 a year pass through our doors, and there is a common theme I see over and over…
“We just need to raise some money…”
- To increase marketing spend so we can grow
- To finish building so we can launch
- To hire a rockstar developer
… you get the point.
Raising money and achieving milestones in your company are very different. A milestone is something that fundamentally moves your startup forward. Validating your target market is a milestone, launching your beta is a milestone, achieving revenue is a milestone. Raising money is not, and here’s why:
1. Funding doesn’t validate your business model
Your customers validate your business model, not your investors. Build something that solves a problem, sell it to a customer, ask them how it works, fix it (because it’s broken), then do it all over again. Raising $1M doesn’t change this process, it just makes it possible to spend way more money than you need to.
2. Funding gives you an excuse to wait
Waiting on funding kills startups. Founders have a tendency to slow to a snail’s pace when funding is on the way, but the process almost always takes months longer than you think. “We’ll start the marketing when we get funded” isn’t going to help your startup. Never stop moving.
3. Funding is the fuel, not the car
I’ll accept that a certain percentage of startups simply can’t scale without outside money. Let’s think about that money as the gas that goes in the car (wisdom via Tim O’Reilly). Without gas, you still have a car — find a hill, push the car up it, then roll that sucker down. Even better, find a customer and ask them if they even want a car. Raising $1M to build a really great car is pretty useless if your customer needs a boat.
4. Funding doesn’t change the fundamentals of your startup
It just means your bank balance is higher. Any problem you have (a bad product, a small market, the wrong business model, or a lack of traction) is still there if you raise $1M. The money lets you continue to have those problems for longer, but it does not solve them. Good ideas, hard work, and lots of coffee solves them.
5. Raising funding is easy (achieving a milestone is hard)
Milestones aren’t easy, startup success isn’t easy, but raising money is easy. If it’s hard, it’s probably not the right time (or amount, or investor, etc). If you have a proven product in a large market, with significant early traction and a demonstrated business model that’s profitable — you’re going to attract investment. Proving a product, creating traction, and finding your business model are hard tasks. These are milestones.
Long story short, fundraising is usually a necessary task when growing a startup. But that’s all it is — a task. Like stopping at a gas station on a road trip. The gas station isn’t the destination, it’s only a required stop along the way. If you spend all day driving from gas station to gas station you’re going to waste a lot of time, and spend a lot of money, and drive in circles only to buy gas over and over again.
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