Getting funding: good or bad?
If you read my monthly news roundup (and if you don’t, you should!), you have probably noticed that a fair amount of the content is on companies getting funding. Why? Well, for one thing, big (or even moderate) money is interesting. Funding can also tell you something about which types of recruiting companies folks outside our industry think have the potential to grow substantially (witness: programmatic). Funding can also serve as a recognition of success (‘that company did great with the initial round, let’s give them some more’). And sometimes, well, it just means that the company has a good ‘pitch team’ and/or good connections in the VC world.
The reality is, most companies in our industry don’t ask for or get funding. They are ‘self-funded’. They start, they struggle, they grow. Or not. I think most founders whose companies do get funded are doing so for a couple of reasons: a) they want to accelerate their growth; and b) they are willing to give up some or most of their ownership in exchange for a quick(er) exit. (Yes, there are other reasons, but these seem to be the most typical that I’ve run into).
But…
What if you did get funding? What would you do with it? And why? I would posit that this is a useful exercise to go through – it makes you think about where your business is going, and why. Many times the lack of money isn’t necessarily linked to a lack of progress toward goals. Instead, it may be an absence of goals.
So let’s think this through. For the sake of this what if exercise, assume that you’ve just received an amount of funding equal to the gross business income you expect for the current year. So if you’re generating $5M in sales, you’ll receive $5M in funding. Also assume that in return, you will give up 25% of your ownership in the business. You still control the business, but not completely. What are you going to do?
- Go hog wild on marketing: If you look at what most companies say when they get a funding round, they will say ‘spend on marketing to increase market share’. In other words, spend to grow. Is that what you’d do? Or….
- Invest in new product(s): Maybe you’ve got a great idea that has never taken flight because you couldn’t invest in it. Or perhaps there is a product that’s ‘half-built’. Or would you rather…
- Acquire new staff: You can have your cake and eat it too if you hire new sales staff – you’ll grow sales AND you’ll get bigger – probably. Or maybe you’ll pick up some super-smart developers who will wean you away from your current ‘off the shelf’ systems. Or…
- Acquire a competitor: Quit competing with them and instead, take them out of the market! If you’re lucky, you’ll pick up market share AND top notch staff. Or…
- Retire debt: OK, I don’t hear this too often. I guess it’s theoretically possible. But swapping debt for ownership? Well, it happens.
So which one did you pick? Why? Now take your newfound knowledge….and do it anyway! If you’ve been holding off on marketing, cut back in some other areas and use the money to drive sales – the lack of lots of money usually makes your spending more targeted and careful. Or – don’t leave that new product on the shelf – get it done! Sell it! And so on.
Sure, you can’t do these things the same way as if you had lots of someone else’s money – but most of the time you can still reach your goal. You’ll just have to get serious about actually achieving the goal. Do what’s most important, and don’t worry about the rest of it. So ask the question – what if? Remember – getting funding is only half the process!
And yes – you’ll get to make more money and keep your company!
Note: The Doctor is enjoying Memorial Day, so this is a post from a few years back – still relevant!
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