This is a multi-part series sharing the lessons I’ve learned on my entrepreneurial journey thus far. Here is the seventh lesson. Read the intro, first, second, third, fourth, fifth, and sixth lessons, if you haven’t already done so.
We are besieged with startup success stories. The multi-million dollar rounds of funding a particular startup has raised, making it the newest unicorn, pepper our social media feeds. Good news stories are great. They help us to keep going, or encourage us to start the business we’ve been dreaming about. But they also lull the reader into believing that the startup journey is all about raising venture capital. It’s not. If that is your primary goal, you’ve already lost.
The shiny stories gloss over the number of years, hard work, and tears that preceded said investment. As I outlined in my previous article, building and running a startup is really hard. If you’ve never started a business before, you could be forgiven for thinking this is how things will go:
- Have a great idea.
- Build something.
- Get venture funding to scale.
- Sell lots of the awesome product that you’ve built.
- Get rich.
That’s not how it works. There are exceptions of course, because there are nuances to why sometimes the path laid out above is actually how it happens. But for the most part, it doesn’t.
I am not saying investors don’t matter; they do. And they are essential to help grow great companies.
What I am saying is, if you think getting investors means you’ve achieved something, you’re playing the wrong game. And you will find it more difficult to build a sustainable business.
A sustainable business welcomes external investment, but it doesn’t need it to survive. A sustainable business takes external investment to go faster, not to stay alive.
Your primary goal should be to build a sustainable business.
Side note: I mean “sustainable business” as one that can keep going without external investment, not one that is in the business of sustainability.
“Do you have any traction?”
“You need more traction.”
“Come back when you have more traction.”
What the F*&% is this “traction”?
Depending on your type of business, it gets measured differently. For example, a B2C company might measure it in the number of people on a waitlist. Or people signed up on the platform. A B2B company will typically care more about how much money they are making from their customers; having 1,000 customers who don’t pay anything isn’t as useful as having 50 really passionate customers who actually hand over money.
In essence, it’s a measure of how good you are at getting people to use what you’ve built, how you are able to make money from them (either directly or indirectly), and how quickly you can make this number go up.
I’m sorry if it sounds very transactional. But hey, this is business. It’s also what potential investors really care about. You need traction before you can even think about asking for investment.
It’s really hard to focus when running a startup. There’s always a huge list of things you could be doing. The trick is figuring out which ones to do first, all while constantly calculating how long you have until you drop all the balls you’re juggling because you’ve run out of money.
And it’s ultimately cashflow that looms over every startup founder, like the bad cough you can’t ever seem to shake. It’s why there is an overt amount of focus on external investment. We need to keep the lights on to give ourselves the chance of being successful.
There are four common ways for a startup to get more money:
- Government grants
I’ll ignore the third and fourth options for now, because while companies do use them, I’d be diverting from the topic if I were to address them now.
The most important lesson I’ve learnt in this context is that everything comes down to having customers. All the other problems that one is juggling become much easier to deal with once you have customers. As such, your focus needs to be about how you are going to acquire paying customers, and keep them happy.
It might seem simple and obvious as you read this, but when you’re in an environment where you are forced to be hyper-reactive, and everything that lands in your lap appears to need your immediate attention, it’s really easy to lose sight of the most important thing.
I never really appreciated the often-used “cash is king” quote until recently. A startup needs cash in the bank. And we need to get cash in the bank account using whatever legal and ethical means we can muster.
This is the underlying driver behind everything I’ve outlined in this article. We need cash in the bank. So, if you can somehow get investment with little traction, no customers, and no extended team, more power to you.
For most people, that’s not how it works. I needed to actively change my views on investment during the Antler program because I did erroneously perceive that getting it would equal success. But all that does is boot the cashflow problem down the road if you haven’t figured out how to get sustainable traction and paying customers.
It is this myth of the startup world with its glamorous funding afterglow that needs a reality check. It needs better entrepreneurs with the right mindset, who aren’t just in it to make lots of money for themselves through any means possible.
Read on for the next lesson.
Ian Yip is the CEO of Avertro, which brings science to cyber story-telling by providing a simple, yet sophisticated executive and board cyber platform that helps organisations tell a compelling story, right-size their cyber program, and understand their cyber-why.