Revenue Is the Only Funding Your Startup Should Seek Forget VC money. Stick to "Series R."
By Chris Savage Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Founding a company can be both incredibly exhilarating but also incredibly costly. Among the bevy of risks associated with becoming an entrepreneur, funding is one of the largest. That's why many startups turn to outside sources -- venture capitalists -- for the backing necessary to ensure their businesses survive a few additional months or years.
Related: Avoid the Seed-Funding Surge Trap With These 8 Tips
I'm not one of them. Unlike other entrepreneurs, when I started Wistia, an online video hosting platform designed for businesses, I opted to avoid Series A funding and instead sought "Series R" revenue.
While some may question the solvency behind such a plan, there are a lot of benefits to avoiding outside funding. Entrepreneurs end up having more control over the day-to-day responsibilities of their businesses and can make their own decisions without the repercussions that stem from making mistakes with someone else's money. By putting your efforts toward creating revenue, you can put the time into investing in and nurturing a product and crafting a strong culture -- two elements that shape great, long-lasting companies.
Eight years after the inception of Wistia, we now serve more than 120,000 companies in more than 50 countries, providing them the necessary tools to use video in their marketing efforts. Although our journey to this point wasn't always easy, here are a few of the lessons I learned along the way.
Lifestyle matters: keep things cheap.
I began Wistia with a friend shortly after graduating from college. We assumed our meager savings would last us for about six months. For entrepreneurs -- especially those starting their first business -- living expenses are your burn rate, so we kept our spending extremely low in order to buy more time and allow us to build a better product.
We started off by limiting our grocery spending, for example, to just $15 a week and kept our salaries as low as possible to enable us to hire talented employees later on. We were shameless in asking friends for used whiteboards, printers, paper, lamps and supplies left over from college as we created a pseudo office-space right in our apartment.
Related: 4 Steps to Help You Prepare for the Fundraising Process
Embrace slow and steady growth.
The first few months and years of starting a business can feel like an eternity. Entrepreneurs pour their hearts and souls into building their companies, but it takes time -- a long time -- to get things done the right way.
You don't have to be the first to market, but you do need to be the first with the best solution. And the best solutions often take the most time to develop. After nine years, our growth has been consistent, but it certainly seems astronomical in terms of where we started in 2006.
Paid > free
New services crop up almost daily, offering something through a free trial in the hopes that it will catch on and become popular -- before the service begins to charge a fee for usage. At Wistia, we did everything "backwards" by today's standards.
We started offering a pricing structure that charged users based on product usage. Although getting customers to buy in can be challenging, once they agree to pay for a service, you can get them to upgrade relatively easily as they begin to find value in the product. We have customers who once paid $50 a month, who are now paying more than $1,000 a month. That's a simple yet practical way to build revenue. A free plan, in contrast, won't help you increase revenue.
Invest in culture.
Although it's a popular buzzword, "culture" is at the heart and soul of every modern startup. Every company operates in a unique way that helps it succeed. But when entrepreneurs rely on investors for funding, they must often sacrifice the unique identity they founded the company with. What's more, the impact an investor can have is palpable. It changes the way the team thinks about priorities. It creates a churn-and-burn mentality that creates an environment of short-term thinking.
In 2011, five years after Wistia's 2006 inception, the company had five employees on staff; and we were toiling with various ideas of how to scale the business. That was a daunting question for the team at the time. But the fact that we shared similar values helped us enjoy the challenges each day presented. That fact has made us content to work together, and succeed, ever since.
Related: Angels, Venture Capitalists or the Crowd: Who Should Fund Your Startup?
