The funding trifecta
Do you tick the boxes?
Investors look at a deal from three angles:
- Are you investable?
- Is the deal investable?
- Is the risk investable?
In order for a deal to happen all three boxes must be ticked.
It’s important to remember that many viable businesses do not raise VC funds, as a viable business does not equal an investable business.
There’s a pervasive myth that there’s no funding available for early-stage businesses. There is sufficient capital in the ecosystem and South Africa is not short of great ideas or products. Unfortunately, what we are short of is great entrepreneurs. There are many more R1 million opportunities than there are R1 million entrepreneurs. In particular, there is a shortage of great entrepreneurs who can scale their start-ups into assets of value. There is a key skills gap between the ‘wantrepreneur’ and the scalable entrepreneur.
Here are ten ways that you can beat the odds and build a business that is scalable, sustainable and will attract the attention of investors — if you even need investment after getting the basics right.
Remember: Many great businesses have been self-funded.
1. Find and craft your dream team
Investors back the jockey before they back the horse. As talented as you may be, it’s unlikely you have all the skills required to launch and build a successful business on your own. And even if you do, you won’t have the time and energy to do so, especially as your company begins to grow. Investors invest in people and not ideas or products and services.
Investors also prefer to invest in teams over individuals. Have you put the right team together? People are far more important than the idea or product. Whilst many entrepreneurs have a great product or service, they do not demonstrate the business skills to build a successful business around that product or service.
Don’t be a solo founder. Except for some very isolated examples, most entrepreneurs will have little chance of raising money unless they have a team. It may be a team of two, but the solo entrepreneur raising money can be a red flag.
First, no single person can do everything. We’ve never met anyone who can do absolutely everything, from product vision to executing a plan, engineering development, marketing, sales, operations, and so on. There are just too many mission-critical tasks in getting a successful company launched. You will be much happier if you have a partner to back you up.
2. Understand that raising capital is time consuming
This time could be better spent on getting customers and developing your market. Rather invest the initial time in obtaining product-market fit than trying to raise money too early.
Raising capital does not validate your business model, only customers do.
This makes it vital to get paying clients before you pitch to investors. No one will fund you if you are not solving a problem. It’s that simple. And it’s hard to prove that you’re solving a problem without paying customers.
3. Bootstrapping is non-dilutive customer funding
Some of the most successful start-ups have self-funded their businesses through the simple act of selling. Conclude a distribution agreement through a large distributor, reseller or OEM. Pound the pavement and sell your product. Get customers — and adjust your model or offering if you haven’t found product-market fit.
This is how early-stage entrepreneurs figure out how to get their businesses off the ground. Every entrepreneur owns one very valuable resource: 100% of their equity.
Use it wisely and try not to dilute it too early. Bootstrap your company before you try and raise institutional capital.
4. Begin discussions with investors before you need the money
A soft introduction to an investor is an effective way to start a conversation about your business. Grow your network at every opportunity and then leverage that network. I am a firm believer that an entrepreneur’s network is their net worth.
Once you’ve made a connection with an investor, you can keep them updated on your progress. In this way you’re showing them that you’re setting goals and milestones and meeting them. This creates a very different discussion down the line when you are looking for growth funding.
5. Not all money is created equal
There is a difference between ‘smart’ and ‘lazy’ capital, and you want smart capital. There’s no shortage of money looking for a home, but if you’re looking for investment capital to truly build a scalable, sustainable business, then you need all four types of capital from your investor: Social capital; financial capital; human capital and mentorship capital.
6. Make your business attractive to an investor
In order to present an attractive deal, you need to think like an investor. Put yourself in their shoes, and understand their business model.
Investors look for scalable businesses and to raise finance you need to show how you will scale. A good idea does not equal a good business model or an investable business. You need to show investors how you are going to make money.
They need to see a clear ROI for their investment. You must quantify the risks your business faces and show them how you will mitigate them. You also need to show them how you will use the funds raised. High salaries, flashy cars and swanky offices are not what investors want to pay for.
7. Be realistic about your valuation
Investors are not gamblers and business is not about taking unnecessary risks. It’s about mitigating risks. There are a number of key areas that investors focus on, including proof of product-market fit, consumer acceptance, first rate management, the potential and ability for high growth, whether it’s a high margin business, if there’s a viable risk-reward relationship and if there are obstacles to competition. Most start-ups fail because they don’t get one or more of these ingredients right.
Your forecasts are at best a bunch of hypotheses or guesses, so bear all of these points in mind. Wild valuations that discount these core areas will show investors that you haven’t done your research and you aren’t in touch with your numbers.
Start-ups that are attractive to investors understand that they need to be able to articulate their market research and how they will achieve traction.
For me, there are three critical ingredients that determine start-up success:
- Do you have the best team on the planet (people)?
- Are you selling something customers want (product-market fit)?
- Are you able to get and keep customers (in other words, are you adding value to their lives)?
These three elements are more powerful than an over-inflated valuation will ever be. In fact, over-valuating your business will do you more harm than good.
8. Sell the deal to the investor
Raising money is about selling. No business skill is more important than the ability to sell. If you can’t sell your idea, product or service you won’t raise the required capital for growth, convince your prospective investors of your vision (and subsequent valuation) or achieve the deal terms you want. Selling is critical.
But be careful. Dilution is less important than success. 100% of nothing is nothing. Many entrepreneurs want funding, but they don’t want to give equity away for that funding. If that’s the case, rather choose the debt funding route. Investors are looking for equity, it’s that simple.
If you choose this route, then the best way to approach investment is with an abundance mentality. Together you will build a bigger business, and everybody wins.
9. The business model — and not the plan — is one of the critical steps in raising capital
You need to present a business plan when you pitch to an investor, but what they’re looking at is the business model contained within that plan.
Research and prepare a good business plan that is tidy and easy to read. Package it from the investor’s perspective and not yours. Your plan should be a roadmap from where you are today to where you are going to become profitable. We call this a clear path to profitability, and it’s an essential component of your presentation.
Focus on the one to three-page polished executive summary and elevator pitch and assume it’s the only document your investors will read. Remember, you must validate your financial figures and show that you have achieved product-market fit.
10. Master the pitch
Finally, make sure your pitch is perfect. I have never heard a pitch that was too short. On the other hand, I’ve sat through many, many pitches that were too long.
The best pitches show the investor what your business does. They include demos and prototypes. A 60-slide PowerPoint deck is the exact opposite of this. Be ruthless in removing information from your deck to get only the essentials across. The purpose of a pitch is to stimulate interest, not to close a deal. If the pitch is short and to-the-point, you can start a more in-depth discussion. A long, rambling pitch will just lose investor interest and close the door on a potential deal.
The foundation of a great pitch is the research you do before the meeting starts. You need to know your audience, what they care about, and what will pique their interest.
The best pitches follow the 10/20/30 rule: A PowerPoint presentation should have ten slides, last no more than 20 minutes, and contain no font smaller than 30 points.
The 10-slide PowerPoint presentation
- Problem: The pain that you will be addressing (avoid looking like a solution searching for a problem).
- Solution: The painkiller that you have developed and how it will alleviate the pain (ie. the scratch for the itch, aka the product).
- Business model: Explain how you will (or do) make money.
- Underlying magic: Explain your technology, the secret sauce or magic behind your product or service.
- Marketing and sales: Explain how you are going to reach your customers.
- Competition: Provide a (realistic) view of the competitive landscape.
- Team: Describe the key team members as well as the board and investors (must sell yourself first and your team).
- Financial projections and key metrics: These include number of customers, conversion rates, cost of customer acquisition, lifetime value of customer.
- Status/progress and timelines: Status of your current product or service, what the future looks like and what the money will be used for.
- TOP RULE: Use slides to lead not read.
Pay Your Dues Before Raising Capital
Do your preparation. Research your market, build a cash reserve and win over your customer. Then ask for investment.
Did you know there are 10 billion mobile phones in the world? I have an idea for an app. If we only get 1% of the 10 billion users out there, I’ll have 100 million users and my company will be worth R1 billion. Will you give me R10 million for 5% equity? — Dave
Is this you? If so, pay attention: Market size does matter. But competition matters more.
Yes, there are billions of mobile phones in the world. Yes, there are great opportunities to be grasped. Yes, if you grasp them you will be rich.
The question is: How will you avoid competition? How will you ensure you’re not fighting hundreds of other well-funded, hard-working entrepreneurs? How are you different from the hundreds of others that chased the same idea and failed without trace?
Assuming that by some miracle you find a niche in which you’re the only player, the next question is: How are you going to let people know about your product? How will you raise awareness? How will you market?
These are the questions to ask yourself before you ask someone else for investment. Otherwise you’ll look like a fool and fail. Or worse, you’ll find a fool investor and you’ll waste two years of your life, at the minimum, chasing an impossible dream and losing other people’s money.
I currently work on a mine in the Northern Cape. I want to make a device that allows mining machinery and people to interact/communicate, thereby increasing safety and efficiency. — Brendan
Good idea, nice niche (niches are good!) You’re talking about entering the IoT category (Internet of Things). A healthy place to be in coming years.
In my opinion, you don’t want to get into the hardware game. Rather plug into the APIs (Google it) of smart device vendors like Apple and Fitbit. When it comes to sensors/devices for cars, buildings etc, you can find some pretty affordable stuff out there. Good battery, low maintenance. You’ll need to research it yourself. The key is the software. Tying together all the watches and cars and buildings in order to improve efficiency and safety.
Making software is not wildly easy. If you’re not a software developer, you have three choices:
- Pay for a developer to do it.
- Give equity to a developer to do it.
- Learn how to develop.
Option one is the cleanest and best. Your minimum viable product will probably cost about R200 000. If you don’t have the cash, postpone your dream. Don’t panic, the opportunity is not going away. Before you embark on your entrepreneurial journey, make sure you have enough cash.
I have compiled a marketing template. Kindly advise if the wording, language and clarity is on point. I had a second opinion saying it was not engaging, professional and has no actionable call. — Mam
Documents are useful for forcing you to distil your thinking, but they won’t get you a deal. Only face-to-face meetings get the deal. Only relationships get the deal.
Spending your life fine-tuning decks and docs is a form of procrastination and delaying the real thing: Sales.
If you win over the customer, the rest is just ‘ticking the boxes’. If you don’t win over the customer, the rest is just finding excuses to not give you a deal. Of course, you need your summary document. And it needs to be professional. And it needs a call to action.
But success will come from your ability to win over the customer (or investor). Don’t look to your documents. Look to your customer.
Alan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.
What it’s about
It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur. For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy. This book is a collection of tips and wisdom that will help you make money without forgoing happiness.
Get it now
To download the free eBook or purchase a hard copy, go to www.13rules.co.za. To browse Alan’s other books, visit bigalmanack.com/books/
Who Would Invest In Your Start-up, And Why?
The type of funding you should pursue depends on your business’s value and scalability.
When we launched Cielo MedSolutions, a SaaS provider of population management healthcare apps, in 2006, my co-founder and I assumed we’d be able to raise venture capital. After all, we both had track records of having built and run software businesses and making money for investors.
However, we failed to raise VC funds, and had to settle for a far more modest amount of capital from a combination of angels, economic development agencies, non-profits and federal grants.
Partly as a consequence, we grew considerably more slowly than we had hoped. We ended up with a nice exit – sold to The Advisory Board Co. (ABCO) a little over four years later – so nobody’s feeling sorry for us. But, it wasn’t the big splash we set out to create.
Why? Even I, as a student of the game, have had trouble gauging start-up investor interest.
This experience – combined with observing hundreds of other start-ups – motivated me to look more closely at these tough questions: As you’re thinking of launching a business, or looking to take your existing business to the next level, should you aspire to raise outside financing?
And if so, what types of funding sources might consider your business to be an attractive investment? VCs? Angels? Friends and family? None of the above?
The Start-up Fundability Matrix
In my recent book, The Launch Lens: 20 Questions Every Entrepreneur Should Ask, I introduced the Start-up Fundability Matrix (see below), a conceptual framework that can provide you with preliminary answers to these questions.
A quick, nerdy explanation
The x, or horizontal, axis of the Start-up Fundability Matrix indicates capital efficiency (ranging from low to high). All other things being equal, outside investors prefer to put their money behind a business that’s capital efficient, meaning that for every dollar invested, it’s good at producing strong returns on a dollar-for-dollar basis.
On this scale, the more “investable” businesses tend to be those that (a) require only a modest amount of capital to launch, and/or (b) can be scaled dramatically and efficiently by injecting just a modest amount of additional capital.
The y, or vertical, axis denotes valuation multiples (again, ranging from low to high). Valuation is the value of the company, or its overall financial worth to investors. Since early stage companies are privately held, and therefore don’t have a stock price you can look up on a public exchange, investors often use patterns from comparable companies to estimate the valuation of a start-up.
The most commonly used metric is the valuation multiple – that is, how much certain types of companies are typically worth, measured as a multiple of the last 12 months’ earnings (profit) or revenue (total sales). In general, businesses that achieve high valuation multiples are those that show three characteristics: High growth potential, sustainably high profitability and strong differentiation versus competitors.
So, now we’re ready to look at where various businesses fall in the Start-up Fundability Matrix. Here are the four quadrants:
Quadrant 1 (upper right): Venture Capital – Businesses have a combination of high valuation multiples and high capital efficiency — inexpensive to launch and/or inexpensive to scale; these startups are the most attractive to VCs, corporate strategic investors and organised angel groups (which often behave like VCs).
Quadrant 2 (upper left): Patient Capital – These companies share the high valuation multiples with Quadrant 1 firms, but are less capital efficient, often because they lend themselves to less rapid scaling due to addressing a more modest market.
These businesses tend to be better suited to investors who are more patient and perhaps less oriented toward pure financial returns – such as friends and family, specific angels with a special affinity for your particular sector, federal government grants, or state and local small-business loan programs.
Quadrant 3 (lower right): Bootstrap – These businesses rank relatively poorly on the scale of valuation multiples; on the other hand, they tend to be capital efficient (inexpensive to launch and scale). Think of Quadrant 3 firms as cash-flow or lifestyle businesses. It’s often possible to get such a business up and running with a modest investment out of savings or a bit of credit card debt.
Quadrant 4 (lower left): Dead Zone – Businesses here are extraordinarily hard for entrepreneurs to finance, and for good reason – they require a lot of capital to launch, and once up-and-running, are simply not that valuable. As a consequence, outside investors tend to run away from such startup ideas.
How I could have used this tool
Circling back to Cielo MedSolutions, we launched the company assuming we were in Quadrant 1, an “investible deal” for VCs.
We were wrong, because most healthcare IT-oriented VCs, while feeling comfortable with the high valuation multiples in our sector, suspected that we were too “niche-y” – addressing too modest a market – to be dramatically scalable post-launch.
Although we didn’t have the benefit of the Start-up Fundability Matrix at the time – and hindsight is 20:20 – what the VCs were effectively signaling to us is that we belonged in Quadrant 2.
We raised a couple of million dollars from a blend of “patient capital” investors. Had we known our “quadrant” up front, we could have saved a lot of time pitching VCs, and redirected our efforts toward selling to customers, building industry alliances and the like. Alternatively, this clarity of thought might have motivated us to explore broadening our product offering.
How you can use this tool
Applying the Start-up Fundability Matrix to your start-up can help you be clear-eyed about whether you should aspire to raise outside capital, and if so from what types of investors.
If you think you’re high on the y-axis (i.e., high valuation multiples), then the primary determinant of whether you’re in Quadrant 2 (Patient Capital) or 1 (VC) is market size. Narrow or niche product businesses push a company to the left (Quadrant 2), while very large addressable markets and broader product platforms tend to push a company to the right (Quadrant 1).
On the other hand, if your business ranks low on the y-axis (low multiples), the principle factor pushing you left or right on the x-axis is launch cost. Companies that can be launched with a modest amount of capital fall into Quadrant 3 (Bootstrap), while those that require large amounts of capital to build (e.g., to fund construction of a factory or a large store, and to purchase large amounts of inventory) fall into Quadrant 4 (Dead Zone).
At the earliest stages of company development, the Start-up Fundability Matrix can even help you think through the pros and cons of different business models.
If, for instance, you’re an entrepreneur with a passion for buying and selling used musical instruments, a Quadrant 3 approach might be to open a brick-and-mortar store, with all its associated overhead and geographic constraints. Tough to get financed, so you’ll probably need to bootstrap it.
Alternatively, you could pursue a Quadrant 2 (or even possibly 1) business model and create a re-commerce marketplace where your website enables sellers/consigners of instruments to find interested buyers.
By making that business model shift, you’re tying up less capital in a physical store and inventory, while broadening your geographic reach, profitability and scalability.
In this example, the latter business model may not only be more fundable, but stands a much better chance of being sustainably profitable, and eventually earning money for you while you sleep.
This article was originally posted here on Entrepreneur.com.
Looking For Funding? First, Understand What Funders Look For
Are investors interested in ideas? Traction? The team? The founders? They’re interested in all that and more, say VCs Keet van Zyl and Clive Butkow.
Put two venture capitalists and an entrepreneur (who pitched her business to almost every VC in South Africa before securing corporate funding) in a room, and you’ll hear the truth about funding: What investors look for, the realities for business owners looking for funding, and what you can do to increase your chances of securing funding — or better yet, build a great business without it.
In June, the Matt Brown Show hosted a series of events, called Secrets of Scale at the MESH Club, focusing on what it takes to scale a business. Matt’s panellists included Clive Butkow, ex-COO at Accenture and CEO of Kalon Ventures, a tech-focused VC firm; Keet van Zyl, a venture capitalist and co-founder of Knife Capital, and Benji Coetzee, founder and CEO of tech start-up EmptyTrips. To add a twist to events, both Keet and Clive chose not to invest in Benji’s business when she was on the funding trail, even though they believe strongly in both her and her idea.
Here’s what we learnt from their experiences, insights and advice for local business owners.
Funders back the jockey, not the horse
This is a truth that Benji has experienced first-hand. “After months of trying to find an investor, I decided that VCs don’t know what they want,” she says. “The ladder of proof just keeps getting longer — big white space, addressable market, an MVP (minimum viable product), traction, first users — there’s a long checklist and you just need to keep ticking those boxes. Great concept, great team, we love it, keep going. I can’t tell you how many times I heard that.”
What Benji learnt was that the corporate funders who would eventually choose to back her were interested in two core things. First, did she have skin in the game? By that stage, she had invested R3 million of her own funds into the business, and so the answer was decidedly yes. She was already backing herself.
The second was that they wanted to back her — not necessarily the business. They were interested in her passion, dedication, experience and networks. “You still need everything I mentioned before,” she says. “But ultimately an investor backs the entrepreneur, not the business.”
Clive agrees. “There are a lot more million-rand ideas than million-rand entrepreneurs,” he says. “At Kalon, we’ve seen 600 companies and we’ve made four investments. That’s one to 100 odds, which is pretty standard in this industry.
“That doesn’t mean the 596 businesses we saw weren’t good businesses. Some of them were fantastic. They just weren’t investable businesses because we knew they wouldn’t give us a 10x return. They also weren’t 600 unique businesses — they were 100 unique businesses six times. There are very few unique ideas or even businesses out there — and so it’s the entrepreneur who makes the difference, and who you ultimately want to back.
“We look at three things in an investment. Is the deal investable? Is the person investable? Is the risk investable? If all three answers are yes, we can take it further. You need to have a great jockey; you need to have execution capability; and you need to have traction in a large target addressable market.”
Funders are interested in traction
For Clive, traction trumps everything. “I look for the 4 Ts: Team, Technology, Traction and Target Addressable Market. Without traction though, the other three aren’t worth much.”
“Every single business we’ve invested in had customers, and wasn’t just an idea,” agrees Keet.
The best way to prove traction and to get funders invested is to start introducing yourself before you need money, and then keep them up-to-date on what you’re doing and achieving.
“We receive five business plans via email a day for funding, and we ignore them all if they haven’t come through our network,” says Keet. “This isn’t unusual. 93% of deal flow in South Africa comes from within the VC’s network.”
Don’t think of a VC’s network as an exclusive ‘invite only’ club though. “Building a network is all about attending ecosystem evenings and embracing targeted networking,” says Keet. “We’re all on Twitter. Get to know us. I’m passionate about the journey of an entrepreneur — send me a newsletter telling me who you are, and three months later where you are now. That’s my passion. I love that stuff.”
More importantly, it’s not just a business plan — instead, you’re letting potential investors into your story, and giving them the opportunity to share in your journey.
“It’s not that difficult to get into networks and bump into people at events,” says Keet. “And then it’s much easier to send a follow-up email saying, ‘Hi Keet, we met last week at the MESH Club at the Matt Brown event, can we have a coffee?’ It’s tough to say no to requests like that.”
Clive agrees. His advice is to always meet your investors before you need money. “We don’t have the bandwidth for cold emails, but we do enjoy sharing stories and business journeys.
“Think about it like this: We don’t invest in dots, we invest in lines. Tell me where you are now and where you’re planning to be, and then keep updating me. You’re then able to prove that you can stick to your goals, execute on them, and hopefully even exceed expectations. Get that right, and funders will come to you.”
Clive also says that smart VCs play the long game, often supporting businesses even if they don’t believe the time is right to invest in them.
Both VCs used Benji as an example of this strategy in action. While neither fund was able to back EmptyTrips, both Clive and Keet have kept in touch, followed Benji’s growth trajectory, and supporting her where possible, either with advice or connections.
“Keet opened me to the angel network,” says Benji, “and his partner, Andrea, introduced me to Lionesses of Africa. It was that involvement that allowed us to build a relationship with Siemens and Deutsche Autobahn. VCs aren’t just about funding — they enable ecosystems too.”
Before you look for funding, make sure you actually want (or need) it
The most common question people ask Clive is, ‘How do I raise VC funding and from who?’ According to Clive, this is the wrong question to be asking. “Equity funding should always be a last resort,” he says. “The question business owners should be asking is, ‘do I need funding?’ The best way to build a business is through customer funding. Some businesses are capital intense, but I’ve built many tech companies with no external capital. Customer funding is gold.”
Even though Benji has needed additional capital to build her business, she has also learnt the value of starting with what your clients want.
“Businesses change and evolve. We started out wanting to fill trucks on the empty legs of their trips. I now manage more trucks than Imperial’s CEO, but we don’t own a single vehicle, because we’re a platform that connects transport operators with companies that need transport solutions. We’ve since built an open spot market and we offer insurance solutions.
“We spend so much time asking what VCs want — and I was guilty of this too — when we should be asking what our clients want and need, and then building those solutions for them. That’s how you get clients to fund your business.”
Creating traction, knowing what clients want, building a use case: These are all essential steps in the overall process, and they will either lead you to funding, or help you build a business that doesn’t need external capital.
Focus on what moves the needle
“The real trick to growth is focus,” says Clive. “Don’t try to do too many things. Go deep and drill for oil and gold. Once you’ve scaled a business and you’ve become the best at something you can start to expand. Too many entrepreneurs are easily distracted. Most start-ups don’t even know what they’re building until they start getting real customer feedback. If you’re doing too much it’s difficult to take that feedback in and adjust what you’re doing.”
Keet agrees. “Find your strategy, determine the key metrics you need to grow in, and then focus on growing those metrics — and only those metrics — aggressively.
“From a scalability perspective, the entrepreneur’s ability to execute their strategy is paramount. You need a good product, a large market, and to know where you’re going. You also need to be able to grow five key areas simultaneously: Customers, product, team, business model and funding. These need to grow in proportion if you want to succeed — which is where the ability to execute becomes so vital.”
“Scaling a business is always about the practical stuff,” says Benji. “Consultants and VCs always have acronyms — the 4Ps, 5Cs — I have the 5Es.
“First, you need an explicit purpose. Be clear on what you’re doing and why you’re doing it. Next, you need an effective model that makes financial sense. You need to achieve sustainability sooner rather than later, because the sooner you can fund yourself the better.
“Next is execution support, and this is all about having the right team behind you. You need to be able to execute fast — and that takes a team. It doesn’t have to be perfect; just get it done — done is better than perfect. That way you’re first and will hopefully stay ahead. I often call our customers to apologise for something we’re fixing on the platform and they’re always okay with it, because we’re the only one doing this, and we’re still building it up.
“This is followed by what I call ‘enveloped co-opetition’, which basically means working within your ecosystem. Work together with neighbouring industries. Grow together and support each other, even if you are also competitors. This actually opens doors.
“Finally, you need emotional resilience, because this is tough, and you need to keep at it if you want to succeed.”
“We tend to fund older entrepreneurs who are more mature, understanding and generalists. You need resilience and the tools to succeed, and that often comes from having spent time in corporates, building up experience and a skills set.” — Keet van Zyl
Open additional revenue streams
As Benji mentions, the sooner you can fund yourself the better, so building a sustainable business is key. In addition to this, opening additional revenue channels can help pay the bills while your business gains traction.
“Scalable businesses are based on products or platforms, not services,” says Clive. “However, you can fund the product business with cash flow received through services. Ideally though, as the business grows, you want to increase your product revenue and decrease your services-derived revenue.
“Think of your services revenue as short-term, augmenting the business model while you’re building it.”
Benji, who is still consulting, agrees. “My consulting work ensures I have revenue coming in to support the business if we need it,” she says.
“Look for anything your company does — or can do — that can be monetised,” advises Clive. “But most importantly, critically analyse your business offerings. If you’re solving a real problem, your business can be customer-funded, particularly if your customers love you. I’ve seen cases where customers will pay upfront because they need your solution that badly. That’s the business you want to build. It’s also something VCs look for, because it shows you have real product-market fit.”
“Focus on learning, not earning. Take the long-term view and build the skills to become an employer. Learn as much as you can about business. There are unlimited opportunities to learn available to us today. Become a generalist to succeed and focus on being a leader, and then hire the specialists.” — Clive Butkow
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