To Raise, Or Not To Raise

This blog post was written by Dan Martell and was published on Maple Butter yesterday.

There must be something in the air because over the past 3 weeks I’ve gotten 30+ emails from startups that are actively looking to raise $500K+ and want “advice”. Well, here’s my advice.

Go out there and make some money!

$5700Seriously. 85%+ of the startups that pitch me could’ve easily charged customers, but they dont? It seems like everyone forgot that creating a business meant generating revenues. It does not mean building an MVP, getting 200 beta users and raising $500K. As an investor I like giving money to teams that don’t want it. Sounds weird right? We’ll it’s true. I like scrappy founders that can code and make money (even if it’s to test the model) from their users.

Building a startup is about understand your unit economics and somehow prove out some level of traction and a model that works. Just because you have 100,000 people signed up to your LaunchRock landing page – doesn’t mean you should be raising money.

 

Raising money is not a badge of honor

Instead of spending all that time raising a round ( likely ending up in failure any way ), instead invest that time in pitching customers – early adopters – to buy your product, or sell your vision to someone who can get you distribution. If you’re a team of 2 or 3, then you only need $20,000/month in profit to support yourselves. Is it easy? No. But is it doable? Abso-freaking-lutely!!!

As soon as you raise money, there’s usually only one outcome. Public offering or getting acquired. If you don’t raise, you still have those options, but you also have the opportunity to create the business and lifestyle you want. I’ve done both – bootstrapped a startup to Millions in revenue (I owned 100%) and raised money from professional investors for Flowtown.

But here’s the thing – we only raised after we invested our own money & time building a product people paid for and was generating $20K a month in revenue. We new our metrics (Churn, LTV, CAC) and how we were going to invest in scaling that in a repeatable way. Only then did we decide to raise money to grow because we felt there was an opportunity and we wanted to involve others with expertise.

What I learned talking with hundreds of founders who’ve raised money- especially at the seed stage – they usually don’t pay themselves much to live. They make $60K and the engineers make $100K+. Every dollar is leveraged for growth as they need their traction to look a certain way for their the next big raise. It’s a totally different game when you organically build your company using creative financing or closing distribution deals.

Here’s what I know. If you’re raising so ..

  • you can quit your job
  • your co-founders will join you full time
  • you can build the features that you might monetize
  • you can show the world your a “legit” startup

Then you don’t have the right mindset.

Today more than ever you can build a company for a few hundred bucks and other than your time (learn to code! no excuses) you should be able to charge people. The magic number is a 1000. 1000 people paying you every month. Focus on that (and obviously profit) and you’ll be surprise how many people will be wanting to give you money.

Change your beliefs, build a stronger foundation, then go out there and negotiate from a position of strength.