While you are working on building your company, finding the right audience and establishing your business, you naturally have to deal with negative cash flow (expenditure is more than your earnings). As a startup founder, you end up investing a considerable amount of time in sourcing funds – talking to investors, preparing pitch decks, and following up with the probable leads.
As important as this may sound, a lot of entrepreneurs get addicted to that money. Their first thought is, “How do I source funds to get going?” in contrast to, “How do I form a product that automatically generates revenue?”
It’s quite simple to assume that simply raising funding will solve all and every issue that you are facing, but that’s not as true as you might think. With changing times, entrepreneurs now have the capacity of achieving more with less, in a short span of time. You no longer need a heavy financial backup just to stay competitive.
There’s a concept that encourages inexpensive and swift experimentation which can radically eliminate losses. Popularly known as a lean startup methodology, this concept helps in reducing the many risks associated with introducing a small business with limited funding. With lean startup methodology, you can introduce and test if your products are being accepted by consumers before investing a huge amount in producing a bunch of them. If consumers do not like your products, you can back to adjust and fix the product or shift to a completely new product category.
When is the right time to raise the capital for your business?
The very idea of this question is invalid – fundamentally incorrect. It’s recessive to assume that raising money is the thing and not just something you do to build the thing. Investors are keen on investing in founders who are building remarkable products and creating value for their customers. This is the only way to build something humongous and make it last in the market. The moment you divert your energy from building kick-ass products to sourcing an investment, you set yourself closer to failure.
Once you’ve understood that your product has the potential and customers are willing to purchase, that would be the right time to seek initial traction of funds to expand your market reach. Remember, getting more and more funding will not solve all of your problems. When you find the need to raise funds, you must know why you need it and what could those extra funds mean to your business.
Entrepreneurs in the early phase of their business need to beware of this fabricated style of working on the “important thing.” Remember that money is just an enabler – it’s just a medium that gets you from where you are today to the destination that you want to be in the future. And where you want to be in future should be to deliver a product or a service to the audience that is valuable, loved, and useful in exchange of what your customers pay for.
Raising funds for your startup is one part of entrepreneurship that requires the much-needed skill. Try to be a savvy entrepreneur and know exactly how, when, and what you’re raising funds for. In this tech-centric world where everything is possible, you may not necessarily need tons of capital to compete with huge brands and businesses.