In a recent Entrepreneur.com article, author and entrepreneur Jan Verleur shares “4 Reasons Not to Confuse Early-Stage Money for Success.” He begins by explaining, “Don’t get me wrong—capital is great. It facilitates growth. And in some ways, it validates your business. But the way we position it today, as the definition of success, has created an environment where startups are chasing money too early. They want it before they’ve even launched.”
While securing funding for your business does have some pros, there are also a number of cons. He goes on to explain how that can prove dangerous for entrepreneurs. Here we share three of his four reasons why:
1. You lose control. When you have investors contribute to your startup, they generally like to contribute to business decisions as well. And often what you believe to be best for your business is not the same thing investors believe to be best.
2. You scale too soon. When you have a lot of cash on hand, you may be tempted to grow your business before your business is actually ready for that growth. Renting a big office space, filling it with expensive equipment and hiring additional employees just because you have the capital to do so doesn’t mean your clientele will expand likewise. A business often benefits from going through traditional growing pains that ensure a practice’s ultimate health and longevity.
3. Your culture suffers. Akin to appreciating something more when you’ve paid for it by yourself, building your company from the ground up will become an endeavor that you’re much more invested in because it’s all your own. Verleur explains, “The best way for a startup to evolve is to be challenged by a lack of resources. It forces you to think outside of the box and seek out solutions in the unexpected. This is why bootstrapping is the ultimate approach toward developing the ideal company culture. It makes a team smarter and more capable.”
In conclusion, Verleur is not against obtaining outside capital for a startup, but he does find value in businesses that have been launched by entrepreneurs who are not “chasing money out of the gate as a point of validation.” Investors, he claims, will eventually come to you once they’ve seen the successful venture you have built with your own two hands.
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Verleur, Jan. “4 Reasons Not to Confuse Early-Stage Money for Success.” 12 November 2014 Entrepreneur.com