Holding on to your bootstraps: Why building a founder-led & owned, business is better than chasing a unicorn.
Are you building a founder lead and owned business, or are you chasing a unicorn? It seems that many of us measure the worth of our business solely on how much capital startups have raised, and determine success based on whether we reach that elusive “unicorn” status. Generally along these journeys founders end up heavily diluted and no longer in control of the businesses they started.
Starting a business is hard. The sheer amount of hard work that goes into building a startup is something that even the most experienced of us find consistently difficult, and I sometimes wonder if the increased access to capital has actually made the new-business journey even harder.
Reason being? While it’s true that work-ethic will take you very far, it’s also true for the countless competitors you’ll come across in the market. In a world of software-based startups, wherein gaining the leading edge over rival platforms is a game of inches, it’s not always the best who wins. Often it’s the company that raises the most capital.
The first foot-in-the-door, the company that can use their raised capital to attract the right people and establish a market presence, can often trump a superior product with their access to the target-audience alone.
Just look at the taxi-app companies that tried and failed to establish a market presence before Uber.
In many cases, by the time businesses are actually built up or approaching a salable product, the original founder(s) no longer owns a majority share of the company. Harvard referred to this as “The Founder’s Dilemma” wherein the majority of founders find themselves pressured out of the CEO role within only three years.
Here’s a great article in the Harvard business review. It’s a real eye-opener, and if you haven’t read it, you should:
I’ve seen many of my mates build extremely successful businesses that provided them with a great life and enabled them to give back to the larger community, without needing to chase the unicorn dream. These businesses are often worth significantly more than what their shares would be if they had built a larger company and raised a load of capital. Also, they’re in charge of their own destiny rather than having a table of preference shareholders at the helm.
As I’ve mentioned in previous articles, I’ve recently looked back on my experiences in raising large capital for businesses, and have decided to go back to the basics in my approach to startups. It’s a large part of the reason that I invested in and joined Patona. Using a simple, profitable business model that enables long-term founders has been so refreshing Where a formal board meeting is sitting down for a beer with two mates and hashing out the possible.
As a long-term entrepreneur, it just makes sense and enables me to get things done. Especially in 2020!
Before risking your foundership in the business and placing pressure on the business from capital-raising, consider alternative modules that can fit your business while enabling you to maintain your control of the journey!
Business models that can make a profit straight away and will grow quickly often aren’t particularly world-changing or exciting. While you can find shareholders in some cookie-cutter enterprise, it’ll usually be forced into a cookie-cutter approach by concerned shareholders. The lifecycle of a founder is largely akin to the tortoise and the hare. Everyone, including my past self, wants to go fast and big without a clear understanding of what that means in the long-term.
Look at your business model, and if you need a lot of capital to get it up and running, reconsider launching it as your first business. Try models that can be started with minimal cost first. If you’re thinking of launching a software-driven company, consider a service-based offering in the same field in order to accrue revenue, knowledge, industry connections & insight to take into your larger project(s) with some capital on top of this strong foundation.
Throwing money at the problem might make you move faster, but it can just as quickly move you and your business far off-course and even worse slow you down if you don't have product market fit.
That being said, here’s my advice if you are thinking about starting a company:
- Does the business idea solve a problem that you have encountered? This is really important. If you’re not solving your own personal problem, it can be very difficult to stay passionate about the business in the long-run.
- Start small. Progress is always measured best in small increments. As with anything else in life, you will learn a lot by doing, and if you have a killer-idea or passion, it’s best to back it with some personal experience and growth accrued in smaller endeavours first.
- Don’t bet everything. While many VC’s like to see founders go all in, they can be indifferent to what this means for a founder’s wellbeing. While it definitely shows that the founder has skin in the game, it can cause major stress and mental health concerns when things aren’t going to plan. Jumping out of a plane without a parachute won’t do anyone any favors, even at the behest of peer pressure! Make sure you always have a safety net, even if that safety net has to come from family or friends.
- Your incentive for building a startup should not be career freedom. First-time business owners tell me they founded their startup to gain more freedom, or because they’re sick of being told what to do by a boss. News flash! Your first five years are likely to have less freedom. Instead of one boss, those raising capital now have five bosses in the form of board members. Furthermore, customer, employee & stakeholder demands will have you working day & night while hoping that you maintain a 5% ownership. It’s a large commitment that requires legitimate passion, drive, and reason.
- From the get-go, establish an idea of what you are willing to sacrifice for your business’ success. What’s your priority? Family, friends, money, sport, holiday, hobbies, health, love? Trust me, all of them will suffer if you’re committed to a startup. Learning to balance your business between all of these is arguably the greatest skill of all. My personal advice on this is to always put family first, recognise that your true friends will understand your ambitions, and to always make time for your personal wellbeing.
- Don’t overthink things! Get out there and take action. If it fails, have another go until you get it right!.