HOW FUNDING CAN KILL YOUR STARTUP?

Funding

As India sees a frenzied scramble among startup founders to get their ventures funded, the art of bootstrapping — starting a business with one’s own capital and continuing to finance it from its own cash flows — is fast becoming extinct. The virtues of staying bootstrapped — financial discipline, focus on unit economics along with profitability and the freedom to pursue one’s direction being just three of them — are being forgotten as a rash of entrepreneurs gets lured by a perceived short cut to success.

Instead of solving the right problems of their customers there is a race towards chasing investor’s money. One of the biggest misconceptions with many startup founders is that they can rely on someone else’s money to build their startup. If you cannot trust your own money for your business, why would someone else? Well-funded startups like Wooplr and Doodhwala had received millions of $ in funding yet had to shut down their shop which proves that getting funded is not the only road to success. So, what is it?

Startups should lose their sleep on creating value, not valuation. The sooner they realize, the better it is. Bill Gates and Michael Dell respectively created great technology companies with Microsoft and Dell with no external funding until they went public. Zoho & Quick Heal are successful Indian businesses which have bootstrapped till date with no external funding whatsoever yet highly successful in their areas of operation. Their mantra for success – Doing the Right Things, Doing it Right and at Speed for their customers.

Nearly half of the software product companies in India today are bootstrapped, according to software product think-tank iSpirt. The survey estimates that of nearly 3,400 such ventures in operation today, just about 1,000 will raise venture money in the next five years as inexpensive technology makes it possible to start out on a shoestring budget & make it successful.

Bringing investors also comes with its own sweet costs. Explaining actions to investors may take time which as a startup founder you may not have. It’s usually the small investors who want the most frequent updates, or phone calls before every direction change, and investor relations costs only go up as your business grows. Investors may become the toughest boss you ever had & potentially replace you by a “more experienced” CEO as in the case of FlipKart &Uber. While there is nothing wrong in looking out for funding, the key question to ask is: would it radically change the game by putting the startup on the growth highway? Or is it a mere highway towards earn, burn and perish?

CabBazar is one such startup which has taken the bootstrapping way towards success by being financially disciplined, targeting for profits, learning to course correct, staying lean and having a razor-sharp focus on serving their customers need.

What is your choice?

– Deepak Sharma
(International Lean Agile Coach Lean Startup & Design Thinking Evangelist)

IA Team