Organic Growth

There are many fancy terms that are used around startups and entrepreneurship that sometimes it gets on your nerves. Scale, growth hacking, venture capitalism, exit multiples, customer lifetime value and so on. All fancy jargon invented by bankers and financiers to make simple things complex. Gone are the old times of starting a business for true profitability, growing organically through borrowed money from banks and probably at later stages, an IPO.

Now its about free money being invested in return for equity right? All praises for the investors who simply bet on an idea and some traction to go along with it. No collateral whatsoever involved, even if it means convertible debt in the initial stages. There you see, such terms are so rooted in our day to day startup life that you give in to them unconsciously!

OK, this post isn’t about fancy terms nor how easy it is to get money from a jolly go lucky investor. It is more about what happens next. He (the investor) believes your idea is awesome which makes you believe it to be Milky Way awesome. Of course, you get the money in return for achieving impossible milestones. It is good in the sense that you are on your toes and pressure helps in building a scalable business. What you don’t see is that the investor is only looking at your revenues and a decent exit multiple for himself. He cares bull crap about your profits whatsoever. That will turn into a headache for the next round of investors you see. Very few businesses that have been invested in by angels and VCs have turned profitable. Why would they, when all the money pumped is being used to acquire customers and none to multiply profits?

Customer lifetime value, gross merchandise value, number of users, etc. Who cares what your revenues are when your margins are razor thin? What will you do with a scaled business that leaves you in the negative at the end of the financial year? What will you do when you run out the money? Close shop? Nah! Raise another round. The vicious cycle goes on and on and then finally you try to make a fool out of a retail investor at IPO level.

Nobody seems to care about organic growth anymore. Yes, it takes time but you build a great structure around your business that is profitable. Yes, you heard it right, PROFITABLE. And lack of external stimuli also stimulates your internal creativity. You will come up with numerous ways of sustaining your business model and expanding into other offshoots. The true nature of a business and the true mind of an entrepreneur.

I wonder how many of the startups out there can create a project financing report (forget submitting) and raise a bank loan from one of the premier institutions. That will reveal their real stature.

Nothing wrong in pursuing angels and venture capitalists but try to build profitable businesses. Utilize the funds to build your business organically and quickly. Not to give better exits to your present investors. Any investors listening?

Note: This post is originally part of the author’s startup blog.