VC Funding Doesn't Always Equal Success -- Here Are the 4 Things That Do
Unless an entrepreneur plans a rogue one-red-paperclip-for-a-house trade as the foundation for his business, he or she is going to need seed funding to get started. Yet buckets of Benjamins don't necessarily equate to success -- just as limited capital doesn't necessarily lead to failure.
Consider Boll & Branch: The organic bedding company raised a modest $12 million total in four years. However, it apparently used the cash wisely: Its founders expect net revenue to exceed $100 million in 2018. Turns out these entrepreneurs played things scrappy and savvy, focusing on staying lean and spending with fast returns in mind.
Most startups could learn a lesson from Boll & Branch: A well-executed business plan dedicated to the success of the organization is a stronger predictor of startup success than unlimited financial support.
Who cares if you have deep pockets if those pockets have big holes? Founders owe it to their teams and supporters to think beyond venture capital investments and to obtain guidance from seasoned "been-there, done-that" mentors. Never has this been truer than now, considering that in the past two years, according to CNBC, the amount of investor funding has dropped between 24 and 40 percent.
In other words, it's time for startups to get real about their success, rather than betting on what they might collect from the coffers of others.
Money isn't the harbinger of entrepreneurial happiness.
Any entrepreneur who channels Scrooge McDuck and counts his/her gold instead of making good planning decisions will discover two dismaying realities.
The first is that time is not a renewable resource. Startups that spend and spend but take their time getting traction can lose momentum quickly. If your business is based on technology that's not yet on the market or is relevant only in relation to another product that's already available, your success window is going to be increasingly narrow. Fall behind, and your product might be obsolete before the first sale.
The second dismaying reality? Quality isn't a sacrificial lamb.
Your reputation for excellence will be built on products, customer service and overall satisfaction. Sure, your gadget is cool, but if it breaks easily and you offer lame solutions, you won't have to worry about tweaking it -- you'll be out of business first. Rather than spending money on fancy office furnishings, focus your funding streams on improving customer confidence.
For an example of a company that didn't heed this warning, look at Beepi. Investors loved the business concept: a car-buying marketplace with everything at the customer's fingertips. Sadly, the business leached about $7 million monthly, but not on product development. Instead, Beepi grew its personnel roster, incurring tons of unnecessary overhead; and, despite its more than $500 million in funding, it died a lonely death.
Beepi's Achilles heel was rooted in its misdirection of money. Had the company taken a minimalist approach by employing a modest staff, knowing the importance of time management and using every ounce of internal talent available before outsourcing anything, it might have been successful. Would it have experienced a tremendous workload? Of course, but the company would still be alive to tell the tale.
Startup success factors beyond funding figures
Getting investors makes sense, but it doesn't automatically put wins on the board. Paying attention to the following areas creates a culture of startup success:
1. The clock on the wall. Hear that "tick-tock" sound? It's telling you that it's time to work harder. Dreaming of being an entrepreneur and heading to fancy power lunches in your high-end vehicle? Wake up and smell the grind. Entrepreneurs who succeed sacrifice meals, celebrations, holidays and sometimes even family milestones. Glamorous? Only if you think 12-hour days are akin to diamond-studded cufflinks.
Of course, the upside to all this hard work and hyper-focus is that you could get your business to a level where cashing-out is possible. Then, you can ride on your jet toward the Isle of Early Retirement. Until that moment, you'll have to do as SoundBetter's CEO, Shachar Gilad, suggested during an Entrepreneur interview and work "five times harder than you ever have while working for someone else."
2. The true value of less. You've heard the adage "Less is more." It's correct. Having fewer distractions means not getting all the bells and whistles that eat up cash. An illustration of this principle in action is my kitchen at home, a veritable museum of gadgets. Truth be told, it's too much: We could make do with two knives, not 20. But we've already purchased 20, so we're left holding the bag.
Such is the case with businesses that overhire, investing in the latest office furnishings and stocking up on unneeded supplies. It's wiser to hire by tasks than by titles. Do you really need a chief marketing officer, or do you need someone qualified to take on those responsibilities plus a plethora of others? Instagram could answer that question. The company had a modest 13 employees when Facebook snapped it for $1 billion.
3. The benefit of serendipity. You'll want to be in the right place at the right time when it comes to your launch. Delays could mean the difference between first or last to market. Serendipity doesn't happen through miracles, but through hustle. Adopt a "never be denied" mentality that keeps you on your toes.
This intense go-getter attitude is pervasive among successful founders, from bloggers such as Jon Acuff to entrepreneurs such as Natalie MacNeil. Moguls in all industries find ways to make their 24 daily hours more productive, putting them in serendipity's way sooner rather than later.
4. The element of surprise. Although most product launches happen over time, there's nothing wrong with a blitz attack. Beyoncé did it when she dropped a new album without any prior fanfare -- an album that became the fastest-selling one on iTunes in just three days.
Think about emulating Beyoncé's style.
This falls into the less-is-more theory: if you have to rely on hype, maybe your offering won't stand on its merits. It's like an overhyped movie that receives so-so reviews when it's finally released. Juxtapose that experience with Hollywood hits like Split, which opened at $40 million and Get Out, at $33.3 million. Both films piggybacked on the wonders of mystery.
Is startup cash necessary? Of course. But it's just one part of success. If you take time to strategize, you'll be better positioned to finish first.