Why Seeking Out Investors Could Sabotage Your Business
Bootstrapping forces you to cut the fluff from day one.
One too many episodes of Shark Tank can leave us feeling superhuman when it comes to building a business. You come up with an idea, make a few sales, go after a bunch of people that have money to burn, and the rest will just work itself out… right?
Not exactly. As Jonathan Siegel notes in the book The San Francisco Fallacy: The Ten Fallacies That Make Founders Fail, many founders and entrepreneurs actually lean too heavily on investor funding to bring their ideas to life. As a result, they don’t learn the valuable lessons that come with working on and perfecting a product. Burning someone else’s cash day in and day out can turn your business into a ticking time bomb.
As the founder of Next Vacay, a software company in the hyper competitive travel deals industry, I have to stay on my toes constantly. The instincts I honed from bootstrapping our operation help me make big decisions each and every day. If investor capital seems like the only answer to getting started as an entrepreneur, heed the advice below on what you should be doing instead.
Why investors won’t save a broken value proposition
Too often, entrepreneurs skip what is perhaps the most important step of building a business: Validating a value proposition. It’s one thing to grow a social media account of followers or even email subscribers, but are these followers able and willing to purchase from you? If the answer is no — or worse, you don’t know, because you haven’t asked — you don’t actually have a business yet, you have a hobby at best.
One of the reasons testing your offer is unpopular is that it’s not what we see in mainstream media when we think of entrepreneurship. We think of millionaires driving around in Lamborghinis or yachts; we think of wildly successful buyouts or jaw-dropping IPOs; we think of brilliant, innovative products that appear to have come out of nowhere.
Behind the scenes of all of these success stories are many years of testing, failing and learning. If you’re too afraid to test your value proposition to see if people even want it, why should people even pay you in the first place?
Think about it. You need persuasion skills to be successful in pitching investors. Why can’t you just use those same persuasion skills to sell your product to your market instead? Trust me: If you’re making sales and taking market share, that information is more interesting to investors than flashy language on a pitch deck.
Failure is the way
Another fallacy mentioned by Siegel is the notion that failure is not an option. Actually, failure *is* an option — and it’s completely necessary for business. If you have investors breathing down your neck to figure it all out as quickly as possible, you’ll be tempted to cut corners or ship a version of your product that doesn’t work or doesn’t scale. Shipping before you feel totally ready can be good, but shipping simply to say you didn’t fail is a red flag.
Instead, embrace failure. Poke holes in your value proposition. Practice pitching your concept to trusted mentors or even investors — but don’t take their money just yet. Get raw feedback on where your value proposition is flimsy and you’ll have what you need to keep your product improving along the way.
Hershey’s chocolate was the founder’s fourth swing at a candy company — the first three had failed. Moz founder Rand Fishkin has noted that moving on from initial feature launches too soon caused a downward spiral that took years to correct. And HubSpot co-founder Dharmesh Shah notes that dividing your focus can be dangerous even after you’ve put your team in place and set them up for success.
How to bootstrap your idea instead
So if investors aren’t the best way forward (at least at the beginning), what should you do instead? Here is what to prioritize first as you’re getting started.
Love on your minimum viable product. Get your product to the point of being minimally viable. Then keep up your obsession with it. Your product is your ultimate business card for encouraging repeat and word-of-mouth business, so ensure it has your attention.
Make the customer experience world-class. Even if your product has kinks, great customer service will turn one-time buyers into raving fans. Make regular updates to your product to make it the best in your industry, and focus on what features your customers really want first before you add more bells and whistles.
Research the market relentlessly. The last 18 months have shown us how quickly a market landscape can change. Do your research before you launch, but then continue to do your research as competitors or copycats emerge. Also keep your finger on the pulse of your industry; sudden shifts in technology or availability can alter consumer tastes.
Investors can help a business accelerate its growth. But do you really want to put yourself under that kind of pressure when your product isn’t yet proven? Do the dirty work now to create an offer customers actually want, and you’ll be positioned well to grow in the future however you choose.
Entrepreneur Leadership Network Contributor