Not too long ago, a friend of mine told me about a young entrepreneur who was spending a lot of time looking for venture capital and start-up money for an app he had developed. I suggested that the entrepreneur should forget the financing and use his own money or borrow that of his friends or family. In the businesses I’ve created, I’ve always bootstrapped it, and my suggestion, if you’re an entrepreneur, is that you think about doing the same thing.
Let’s start with the most obvious reason not to waste your time looking for venture capital money.
How about the reality that 99 percent of startups for VC money won’t get it?
When I was developing my businesses, a few people suggested I look into venture capital money, but I never really paid it much thought because I wasn’t willing to go through the exercise, which would have been a waste of my time. I much preferred to bootstrap it and get started on making money than trying to be the 1 percent or less that gets financing. I calculated my odds and having a less than 1 percent chance of success was not worth it and would waste valuable time.
I wasn’t willing to give away any equity stake in my businesses.
I knew that I would be successful in my companies. If you’re an entrepreneur and you think otherwise or doubt yourself, do yourself a favor and get a job. But, let’s assume for a moment that I had instead decided to go down the VC route. Provided I got funded, it would have required that I give up a stake, perhaps even a controlling interest, in my companies. I don’t know about you, but my ideas and solutions are mine, and I don’t want to give away that decision making ability to anyone, even if it meant an infusion of millions into my businesses.
Bootstrapping taught me to be creative and innovative.
I’ve gone through the experience of lean days, especially as we started to take off, where I had to meet overhead costs and payroll, and there was not much margin for error on the revenue side. There were times when I went whole stretches not drawing any salary whatsoever. In fact, one of my fun moments when I get a business to a sufficient level as the CEO is to joke that the chief executive can finally get paid. One of the biggest lessons in bootstrapping is that if you’re committed to succeeding in your business at all costs, then the pressure to make money is going to push you–hard–to figure out a way to monetize your idea well, and prioritize how you use the money and resources that you have on hand.
I like developing a start-up and growing to scale on my timeline
If you get venture capital (again, not likely), you’re going to be pushed to expand to scale quickly. I happen to be one of those entrepreneurs that enjoy growing and developing a business from nothing to something big. I like learning all of the ins and outs of the work I do. More importantly, as an entrepreneur, bootstrapping allowed me to test out ideas and pilot programs to see what worked and what didn’t. When you get VC money, you get little room for experimentation because the pressure is on to get the money and profit into the investor’s pockets and that means having to scale quickly.
Venture capital firms are not all they’re cracked up to be.
Years ago when I was thinking about investors–for about a minute–I came across an article by the Harvard Business Review, and it talked about the myths of venture capital firms. A few of the realities were that entrepreneurs had to do their due diligence because not all VC firms were created equal. A selling point of VC’s is that they can provide the mentorship, expertise, and advice they might need to take off. Not true. Another critical myth was that companies that had VC money were going to have spectacular financial returns. That was also not true, and in fact, VC companies underperformed the market.
It pains me when I hear young entrepreneurs thinking about looking for venture capital money. Please, if you’re reading this and this is you, my advice to you is simple. Don’t waste your time. Your time and energy are better spent diving into your business and figuring out the path and solutions to bring what’s in your mind to the market.
Are you thinking of starting a new business or have you done it yet and wondered the crucial questions to ask about competition? America is a nation of entrepreneurs, and small businesses are the leading providers or work opportunities for people. We need great entrepreneurs to continue to propel the economy forward.
If you’re looking to create a start-up, you can’t succeed without understanding what is out there and what the competition looks like; nevertheless, sometimes entrepreneurs don’t know how to approach this task. The way to do it is to identify the right questions to ask.
- Who’s Your Competition?
The first question you want to ask is who are your competitors. You might be in a new industry, but the likelihood is that you’re not. The first thing you have to figure out is who your competition is and what they offer regarding products and services. You’ll also want to know how they position themselves in the market. If you were their customer, what would stand out for you about your competitors, their products or services?
Once you’re clear on your competitors, do a SWOT analysis. List all of your strengths, weaknesses, opportunities and the threats your company can face in the marketplace. Be as objective as possible and if possible, bring in trusted advisors who can give you third-party insight. You want to understand what others outside of you and your team think about your company and its offerings.
Think about your products and services in the context of the offerings of your competitors. Consider each of their products or services, even the ones you don’t intend to provide in your company and understand what makes your products better. If it turns out that your competitors are doing something better than you are, or plan to, then think carefully about how you can improve your offerings for the market. Think about ideas and test them, every time you have the opportunity, in the market so you can stay at least one step ahead of the competition.
- Customer Relations
Candidly, one of the reasons my companies have had immense success is because we prioritize exceptional customer service and relations. For my team, it’s always about relationship-building, even with our toughest customers. So, as you evaluate your company, think about what your competitors can do better for their customers since this will be an opportunity for you to offer it to them. Be highly thoughtful when you think of how you can develop a customer relations program that will blow away the competition.
When you’re taking your products or services to the marketplace, you have to understand how your offerings compare with those of your competitors. If you’re able to offer a product at a lower price point, is it still something that is of high quality? If, however, your prices will be higher than that of your competitors, what are you offering that will always encourage customers to want to pay a higher price for what you have on the market? When you get to the point of determining price, it is essential to have done the preceding steps because it will help you identify the right price for your product or service and also support your reasons for it.
Once you’ve gone through those five questions, you’ll have a much better sense of not only your competitors but more importantly, vital information that will help you position yourself in the marketplace.
Ask ten business people what strategy is, and most will give the same answer: Strategy is a long-term plan. My undergraduate students give a similar reply on the first day of my strategic management class. Besides, many folks use the word to inflate the importance of their activities. One business executive bragged, “I am excited because after one year we finished working on our five-year strategic plan.” Though difficult, we did it. His strategic plan was an end-a goal. He presented it to his board of directors and then moved to another major project. That’s not understanding strategy and strategic management.
Strategy is About Choices
I learned strategy as a teenager in college when I learned to play chess. Soon I discovered chess is a strategy game. Each person starts with a goal to capture the other person’s king. Each must understand the value and role of individual chess pieces, particularly how each moves. The pawn advances one space, the knight in an inverted L-shape, the bishop diagonally to as many consecutively open spaces as available, while the queen goes in every direction to any sequentially available space.
You cannot play chess haphazardly; stay focused on your goal. Before each move, ponder how the other player might respond, and consider a likely counter. When the opponent moves unexpectedly, revisit your overall approach.
What’s the strategy in chess? It’s your choices to achieve your goal to beat your competition. That’s strategy in a nutshell–choices to get to your goals. And strategy is not static, but dynamic. Once you decide your overall approach (strategy) to capture your opponent’s king, if she plays an unanticipated move, review your strategy and adjust as needed. Never choose a game-plan to checkmate the king and follow it blindly, change as needed. Learn the opponent’s patterns (past) and use it (present) to develop your overall approach (future). Likewise, never do a “strategic plan” and file it. Update it to show current available choices to meet the mission of the business.
Strategy and Negative Choices
I learned three valuable lessons about strategy during my 32-years business career. First, strategy allows you to commit resources optimally. Second, whenever you commit resources to one area, you deny other areas those resources. This is crucial to keep in mind. Although obvious, sometimes we do not spend enough time looking at this negative choice.
The third noteworthy lesson is some choices will not turn out as expected and will be impossible to reverse in the short to medium term. When this happens, if you made a mistake, admit it, look at available choices early, and understand this is part of the strategic journey. You will not get every decision right. Strategy is not static, but dynamic.