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If the Shoe Fits: Funding is No Guarantee

by Miki Saxon

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

5726760809_bf0bf0f558_mWhether 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

One Response to “If the Shoe Fits: Funding is No Guarantee”
  1. MAPping Company Success Says:

    […] doing so he did exactly what Sam Altman warns against, “If a company is profitable, the founder is in control. If it’s not, investors are in […]

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