24 Mar Startup Funding = How Much Ya Bench?
So much of today’s press in the business world revolves around the amount of startup funding a young company receives. This constant bombardment of funding news is having a negative effect on entrepreneurs, it is distracting them from what’s important. Words cannot express how bad this is for the industry.
As a test, I recently asked a couple dozen entrepreneurs what they thought made a successful early stage company and 80% of them gave a response suggesting that the amount of funding they raised made them successful.
The first thing that popped into my mind was the insecurity created in young women by seeing images of skinny, attractive models in magazines and TV commercials over and over again. This constant image of what “women should look like” lowers the self-esteem of those that do not look the same as the ladies in the pictures. In the end it produces poor behavior and bad choices for those trying to look that way. Women tended to starve themselves or damage their bodies thinking that all female figures should look like those on the cover of Vogue.
Well, the same can be said for entrepreneurs in the startup space. Many startups feel bad because they didn’t raise $30M with an idea and a team. Many of them are spending all of their time trying to please investors instead of looking for customers or partners. Many of them are trading their beliefs for the “street cred” of raising money too early. The sad thing to note here is that they don’t even realize it.
Startup Meat Heads
This type of thinking reminds me more and more of the old hilarious skits that Emilio Estevez did on SNL. The series was called, “How much you bench?” These skits were hilarious. They poked fun at the power lifting community and their consistent denial of steroid use and always referred back to seeing how much someone could bench to measure their level of credibility.
The panel of weightlifters, which included, Adam Sandler and Chris Farley used to take callers from the audience. When they answered the phone they would use the greeting, “how much you bench?” This could easily be the theme of most startup podcasts and interviews. Instead of bench pressing, they could easily say, ”Welcome to the show. How much you raise?” See the video below:
In the sports world, certain people stress the importance of the bench press as being the benchmark of strength. Even though, in the end, how much you bench has nothing to do with how fast you run, how good your hand eye coordination is or whether or not you are a good athlete. In fact, some of the best athletes in the world have had very poor bench press numbers. This is no different than the importance, or indicating factors, of the success of a startup. It really doesn’t matter how much you raise, it is what you do, or how you play, that really matters.
80% of companies don’t raise VC
In fact, per the Kauffman Foundation, more than 80% of the fastest growing and largest companies in this country started out the old fashion way, they used their own savings and credit cards. Here is a very short list of some companies that you all know who did not take on venture capital in the early stages of their business.
- GoPro, started with $265,000 in founder capital
- GitHub – Founded 2008, rised A round in 2012 (100M from Andreessen Horowitz and SV Angel)
- MailChimp – Founded 2001
- SurveyMonkey – Founded 1999, raised their first round in 2009 from Bain Capital
- Cabonmade – Founded 2005
- Wayfair – Founded 2002, Series A in 2011 for 165M
- Balsamiq – Founded 2008
- Zoho – Founded 2005
- GoldStar – Founded 2002
- AppSumo – Founded 2010
- Shopify – Founded 2005, got funding only in 2010 (7M)
- Grasshopper – Founded 2003
- WhatsApp - As another answer said – started in 2009 by Jan Koum, raised 250k from colleagues at Yahoo, grew it to the point WhatsApp was handling 1B messages/day and only after that received 7M funding from Sequoia in 2011
Almost all of these companies were born when personal savings were at an all-time low in the US and the cost of starting a business was much higher than it is today. None of them were selling their power early on and all of them now control their own destiny. So why are we being taught that raising capital is the only way to be a successful company? There is no certain way of answering this, but I do have my own opinion.
We are the sum of the content we consume
Unfortunately most of the content that is produced in the market about raising capital is created by venture capitalists. They were the ones that backed the internet and have deep connections to the most power players in the game today. So, most of the information we consume about the importance of raising capital comes from the ones that benefit the most from the process.
This is, in no way, to say that the VC’s are bad people or that they are giving misinformation…not in the slightest. Most of them use blogging the same way we do, to attract business. In fact, if you actually read what they write, it will tell you that they don’t particularly like early stage deals because of the lack of metrics and capital put in the company by founders.
They are telling you to do it on your own until you don’t need them. They are telling us that we should be building companies and running them so we want their money, not need their money. But, as with most humans, we absorb what we want to absorb.
The thing to remember when it comes to raising money is that every dollar you take in today is another power point you lose in the future. Being too short sided in thought today, will cause you problems in the future, period.
Be Creative, Keep Control
Here is some friendly advice from a scrappy entrepreneur that is doing these exact things as we speak.
1. Instead of trying to raise money to hire people, try some good old fashion bartering with the right people. You don’t need deep pockets to get good people to build the first or second version of your product. You need a good network and sales skills to make a deal with groups that can help. You will cut out so many of the issues with team building like
- Time: It takes a tremendous amount of time to find the right people so do it slowly and on your terms.
- Expense: So much of the cost of a team is the money it takes to find, recruit and hire them, take your time.
- Headaches: Most of the people you recruit as employees are exactly that, employees. The average employee stays at the same job for less than 3 years…meaning you will have to do it all over again soon.
2. Instead of raising money to spend on marketing, try building relationships with influencers and share the good fortunes of your company if they help you spread the word. Nothing is better than incentizied partnerships. They build real value if done right. Look to the organic side of things to solve your marketing needs first. After all, VC’s have spent more than $10B financing social companies whose growing purpose is to provide free outlets for your message. Use those first, unless you have an inside track.
3. Instead of raising money to get your own fancy office, go to a co-working space and get things right first. Your average office space today requires at least a one year, if not a three year lease to move in. Why constrain yourself to this space when you don’t really know where you will be in the next year. Rent cheap space on a month to month basis and stay nimble. Your office really doesn’t matter, unless you are meat head Rob Lowe!
Doing these things means that you need less money and you will need it later in the game, when you hold the cards. It also shows ingenuity and grit, something you will carry with you all the rest of your days as an entrepreneur.