A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here
Whether your goal is to be a horse or a unicorn, raising round after round of funding for a higher and higher valuation may do nothing more than give you a false sense of success and security.
Y Combinator’s Sam Altman summed it up in an article focused on the $1M-plus burn rate that is getting more and more common.
…it’s never good to be at the mercy of investors.
If you’re a founder, you shouldn’t want that,” he says. “If a company is profitable, the founder is in control. If it’s not, investors are in control.”
One tip he often offers Y Combinator founders: Treat every round of financing like it’s your last.
There’s a reason that popular wisdom, the kind that comes from experience claims that companies that start in moderate-to-cool and even bust economies fare better in the long-term.
As do hundreds of startups that aren’t on the receiving end of current largesse because their founders aren’t connected.
Bootstrapping or working with minimal funding forces founders, especially young ones to
- be savvy money managers;
- put financial controls in place;
- focus on productivity (not perks);
- monitor and constantly reduce customer acquisition cost (CAC); and
- become profitable or, at the least, breakeven as quickly as possible.
The founders who will be best positioned when the startup eco-system cools, as it always does, and funding is restricted are those who master the first four points and whose companies have embraced the fifth.
Image credit: HikingArtist