It’s my belief that all good CEOs should have built at least one company without the benefit of outside capital investment.
Building the business of your dreams is hard, but it’s even more challenging when you have a group of investors analyzing your every move ensuring that you don’t screw up, lose momentum, or worse, lose their money.
Here are my top 5 reasons why you should avoid raising money:
1. It Forces You to Manage Your Cash
Cash flow is the blood of your company. Without it, nothing else matters. Unless you have experience running out of it and recovering, you will never be able to understand what’s needed to manage and grow your cash reserves. Managing money is step #1 in running a company.
2. You Call the Shots
There is nothing better than being able to pivot on a new idea quickly. When you raise money, you pitch a specific business plan. Investors may attempt to block any attempt to alter or change direction once they’ve put money into the business. You ARE going to fail and will need to pivot many times so you want to be able to have freedom and flexibility when you need to alter course.
3. It Builds Character
I can’t count how many times I’ve been up all night with knots in my stomach worrying about making payroll. Unless you’ve had this experience, you won’t have the right amount of fortitude when bad times fall on the company. It’s not a matter of “if,” but “when.” It’s through the struggles that we find our strength, and it’s important to have those experiences along the way. It would be like having a baby without changing the diapers. Suck it up and let it give you strength.
4. Recovery from Failure is Harder with Someone Else’s Money
Similar to point #2, failure WILL happen. When it does happen, you want to be able to recover quickly and get back to work. The last thing that you need is a group of out-of-touch investors breathing down your neck making your life more difficult. Unless they are 100% sold on you, your leadership will be in question. I believe that failing with someone else’s money is much more stressful — I’m sure you can agree.
5. Raising Money is Hard — Focus on the Business
Raising money requires a ton of work. Forget what you’ve read in the trades or Linkedin. It’s not easy. It requires a ton of work to gather all the information you need to present a story and a business plan. It also requires finding someone that can coordinate the meetings and get you in front of the right people. There’s no rush to raise money if you can avoid it.
Spending a few years cutting your teeth building your business without outside help will only make you look better to an investor — if they think they need you, it will be harder for you to close a deal without a perfect business plan. Stay focused on building a nice revenue stream, hiring exceptional people, creating a culture, then if you still think you need it, go out and raise money.
I’m not against raising money, but I believe there are advantages to NOT doing so out of the gate. Unless you need the money to build the product, you should attempt to generate cash through acquiring customers before bringing in outside money.