Startups: Stop Bragging About Your Funding
Why are we still making a big fuss when a startup raises money?
I mean, I get it. I understand that if a new and unproven company can get some press coverage that clearly shows real cash-money faith in that company’s product and business model, that coverage could lead to a number of new sales leads and maybe even follow-on investment interest.
But does it really? Is anyone doing the math on how often the dominoes fall the right way such that one risky raise isn’t just a precursor to more risky raises?
This post isn’t a rant against outside investment for startups — far from it. Rather, it’s a call to every single founder to keep their focus on pinching pennies so they can maintain a low burn rate.
Maybe together we can make that as “cool” as selling huge chunks of a founder’s dream for a few million bucks.
Let’s Start Bragging About Who Has the Lowest Burn Rate
I had an intro meeting yesterday with a fellow founder who, like me, had raised venture capital in the past but was now trying to get a project off the ground by bootstrapping. We got along well right away, and eventually talk turned into a discussion comparing — bragging, really — how little we were actually spending “this time” on things like software development, hosting, third-party services and everything else.
For each of those categories, one of us would throw out a monthly number and the other would try to top it (or undercut it, as it were). She beat me on almost every single line item.
Yes, we’re constantly monitoring revenue and the forward-looking metrics for growth. Yes, we’re spending money to explore new markets, find fit and gain traction. But we’re also perpetually on top of monthly burn, and we have been from day one.
As it turns out, we both had watched large amounts of investor money get burned through with the expectation of more investor money to follow. This is the classic “building the runway while the plane is taking off” model, and it works — in certain situations.
Today, when technological advancements have exposed a treasure trove of on-the-fly business education, invented wheels that no longer need to be reinvented with every new business and torn down walls to allow robust remote connections to financial, technical, and sales resources, it begs a new kind of question:
Why can’t six months of runway be 12?
The High-Growth Strategy Is Backwards
I’m not uncovering anything new when I rehash the argument between high-speed, venture-fueled hypergrowth and low-speed, revenue-fueled, organic growth. And to reiterate, this isn’t about whether or not venture capital is a “good idea.”
My point is actually a little more forward-looking than that: Can we review the success rate data over the last 10 to 20 years and finally admit that it’s time to start promoting high-speed, low-burn, organic growth?
As it has matured, the internet has made it possible for businesses to expand quickly like a balloon about to pop. Can we now start focusing on refining those processes and make the inflation of the balloon slower and smarter?
For a long time now, high-growth strategies have focused on spending a bunch of money grabbing the most market share — and then figuring out a way to deliver value at profit. The success rate on that is what, one out of 10? One out of 20?
I mean, a lot of what we call “unicorns” today are nowhere near profitable yet. So why does this strategy persist with that kind of success rate? I’ll propose that the answer is that as recently as 10 years ago: It was the only strategy we had.
And now it has become the tired-out status quo.
What If We Turned That Strategy on Its Head?
All good science starts with a controlled experiment in a controlled environment. Then the results are extrapolated to a broader population.
What if we made it a priority to find value first with controlled experiments, lower the burn to near zero in a controlled environment, then expand the market reach from there?
3 Tech Innovations Propelling the New Era of Business
- Remote access and asynchronous communication.
- Gig work.
- No-code and low-code tools.
There are three major business shifts that have made this eminently doable today:
1. Remote access and asynchronous communication: There is simply no longer a need to start a company by sequestering a bunch of dudes in a terrible-but-expensive office space. It puts ridiculous, artificial limits on availability of talent, the time wasted on gathering in person and the up-front cost to house and equip a team . (This is usually the second-largest chunk of burn rate next to paying the talent themselves.)
2. The gig shift: I used to say, “The days when we worked for a single company for 25 years and then retired are over.” Now I’m saying, “The days when we show up to a single company and work 40 hours a week are ending.”
Freelancing, part-timing, gigging and expert marketplace-ing are all converging to make it possible to get a lot of one-time and even perpetual tasks handled in an affordable, trackable, value-per-dollar manner. On top of that, the days of contractors needing “$150 an hour with a 20-hour-a-week minimum” are also over. You can pretty much pay as you go now.
And then you have to ask if you need that talent at all.
3. No-code and low-code tools: You can build a company infrastructure all the way from the establishment and management of the company internals down to low-level product fulfillment and logistics, with tools that already exist and cost very little to “rent.” You can even eliminate most of the up-front need for a technical team with no-code, but that’s another argument for another day.
People Will Want to Poke Holes in This Advice
For years — maybe decades — I’ve had heated arguments over this strategy. Like most proposals that require nuance, there is always one “great misunderstanding” that leads to those heated arguments.
And here it is: I’m not saying it’s one or the other. It can and should be both at the same time.
Venture capital should always be an option. I’d love for every startup to have unfettered access to a couple million dollars in seed money to bring an idea to reality. But like any good entrepreneur, I see the vast white space between the two completely disparate sides of how we do things today.
On one side is the super-risky “venture treadmill,” and on the other is the revenue-based “hobby startup.” Or “lifestyle business.” Or “side hustle.”
Each has its merits. But the longer we keep the two different strategies segregated, the more startups die either a quick death when the hamster wheel stops spinning — or a slow death when the business stagnates.