Not Every Company Should Raise Money
If you are in the tech world, you’d probably heard Mark Zuckerberg’s famous mantra: “move fast and break things.”
Not all companies are startups. Startups, particularly tech startups, are a different beast.
As Paul Graham stated simply:
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.
Startups should be all about growth. The single most important thing for a startup to do is test assumptions quickly and then build something people want based off of that assumption.
It is important to make the distinction between a startup and a company for this reason: not everyone needs to raise money. The reason startups are so obsessed with growth is not only to test assumptions quickly and build a great product — it is also to appease Venture Capitalists.
You see, once you go out and raise venture capital $$$, growth is everything. VCs do not want 1, 2, 3x returns. They need 10, 100x returns to actually be considered a valuable business.
This incentive is misaligned for most companies. If you are a startup, yes this makes sense. If you are an innovative tech company, yes this makes sense.
If you are opening up a small business and you are not trying to change the world ~ then no this is not the right mindset.
Some companies and projects do not need venture money. (Yes, maybe hard to believe for those of us living in this tech bubble). It is indeed possible to bootstrap a company and actually make it profitable.
It all depends on your priorities and figuring out your goals. The wrong mindset to have is that you need to raise money to be successful. Raising money may be a part of building your successful business ~ but it is not your “business” to raise money. It is just an accelerant.
No one is going to show up at your door and just start doing the work you have to do.
Money only prolongs an idea that may or may not work. And for me, that is the scariest thing. That is why, even if you do go out and raise money, it’s crucial to test assumptions. Why? So we don’t waste others’ time and money.
Originally published at Jordan Gonen.