5 Ways to Create Sustainable Funding and Get Your Business Out of the Hole
Strategies to get out of the cycle of spending as you raise.
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As founders, we know one of the biggest challenges is gaining funding. Entrepreneurs who are newer to the space (and even those who are veterans) tend to focus on raising capital and getting investments as the only or best way to get the funding they need. This is certainly the most attractive route on the surface because it's an easier way to get larger sums of money more quickly. But as I tell my students at Columbia University in an entrepreneurship class I teach — raising capital from investors as your primary funding source comes with a lot of challenges on its own, and it places all your eggs in one basket.
More often than not, founders come to me because they're stuck in a bad situation of constantly raising in order to stay afloat. They have rolling capital raises or they raise often to cover expenses and can't seem to get the ideal 12 months of runway needed to feel relief — and they're burnt out in the process. Nothing makes me happier than when I get to work with founders at the beginning of their journey before they start raising, because we have the ability to create a strategy that helps avoid this type of scenario with a strong funding and growth strategy. But for many, we can't go back in time, and we have to problem-solve how to get out of the rut of spending as quickly as the money is coming in. For this founder, the question becomes more about how they can gain more runway. And this is a question that I'm seeing a new wave of in desperation as new founders are entering the startup space.
The short answer is there is no one answer. We diversify our personal investment portfolios in the stock market, and we should do the same for creating sustainable funding for our business to get out of the hole. Your revenue model should have a diversified approach to creating more runway, and I'll cover five methods in this article.
Related: It's Winter For Startups! Here Are Five Ways To Extend Your Runway
1. Raising more funds from investors
Let's knock out the most talked about option — raising more capital. Sure, you can raise more capital through equity financing or debt financing, but if you're already doing this and struggling to create more runway, I'd recommend you keep reading. Continuing to raise more capital as your primary focus puts you in a position of running out of equity, which will make it harder to get investors after a certain point.
2. Optimize cash flow management
One of the most overlooked ways to stabilize your burn rate seems to be the most obvious. Cutting costs by reducing unnecessary expenses and optimizing cash flow management is one of the best ways to create more runway. We're taught as startups that we need to spend to grow. While this is true to a degree, it's also reckless. If you're spending without a plan for that spend, then it's just burning money senselessly without a clear aim. Creating a clear roadmap will help you prioritize expenses for each growth stage to get you to key milestones and inflection points so you can better pace your cash flow. Cutting costs doesn't always mean cutting completely. Instead, it could mean that it's a phased-out expense which a clear plan will help you outline.
3. Increase revenue strategically
Simply put, go back to the drawing board on pricing, customers and offerings. More often than not, I see missed opportunities to reposition the product with new markets to increase revenues. Or worse, I see early-stage founders simply raising without a plan for revenue mapped out. (Yikes!) Expanding your customer base, improving your pricing strategy and launching a new product or service could be an answer to creating more runway. What I'm not suggesting is spending more money to build something new here. Rather, I'm suggesting you look at how you can scale your existing offering to create new demand for it. I usually will work through a profitability audit with my clients to identify the most appropriate products for this to ensure we're working smarter, not harder.
Related: One Secret to Achieving Revenue Growth and Profitability Fast Without VC Funding
4. Improve operational efficiency
Again, this seems too easy. Improving your operational efficiency not only will impress your investors and give them confidence in your ability to grow a business, but it will also be one of the most impactful strategies you can employ. Something I hear from founders often is that they're too early in their growth to think about this. But then again, they find themselves in a position of running low on cash every single month and struggling to keep up. Operational efficiency, simply put, is not optional. A great way to approach this is to look for ways you can automate processes and streamline operations across your six core business areas.
5. Create strategic partnerships
One of the most underrated approaches to creating more runway is to creatively approach your operational needs. Partnering with other companies for mutually beneficial collaborations and strategic partnerships can help you reduce costs, expand reach and boost efficiency.
It cannot be said enough that no single one of these pathways will solve your runway challenges. You'll want to employ a combination of these approaches as the most effective way to gain more runway and reach that 12-month minimum target. It's worth noting that it doesn't come by flying by the seat of your pants. Having a roadmap for how you'll implement these strategies can make a complete difference. We're reminded that most startups fail because they don't have a strategy. While many in the space will tell you that you don't need a strategy, many more will tell you that you do if you want to survive. Your strategy will help you create a roadmap for how you'll gain runway while continuing to grow and meet key milestones.