This week I came across yet another Facebook post where someone is tossing up whether or not to get an investor for their business. Of course the comments are a constant barrage of negativity. “Don’t do it!”, “You don’t need it”, “Bootstrap all the way”.
Maybe it’s the circles I’m in, but I regularly come across this attitude. I’m all for people sharing their opinions on Facebook, but I wonder how much of this opinion comes from ignorance.
I’ve been a big fan and advocate of bootstrapping over the years and was lucky enough to bootstrap a $m business that was sold to a $b business. But I still don’t think that investors are evil and bootstrapping is the only way. In fact I have a business now that has investors, despite never really considering it for my last business.
I think a lot of the distain for investors comes from a basic assumption about business that is wrong. The assumption is that if you have a good business, it will throw off enough cash for profits and enough profits to reward the founders. If the business doesn’t do that, then the business just isn’t good enough and investors will only make it worse.
If you think this way let me ask you this. Name one brand that you love, that has not at some point had outside funding.
The thing I find hypocritical is us bootstrapped crowd of entrepreneurs look up to the modern titans of entrepreneurship and the big brands of our day (who pretty much all had external funding), but still somehow we are not OK with the idea.
The truth is, that in most cases, focusing 100% on short term profit will compromise other things. Things that will ultimately lead to more value.
Starting the sort of business that can be profitable right from the outset, is probably a sign that you are creating the sort of business that can never be that valuable. Freelancing is easy to make a profit, but you can never get investors, and never sell the business because the business is not worth anything.
If you want to start the kind of business that can ultimately has other people wanting to own it, it probably doesn’t start with a whole lot of profit.
Amazon for example for year after year after year lost money, only turning a profit in the last few years. Amazon is currently worth $480b. Jeff could have started a consulting business and made money from day 1, but that business would never be worth $480b.
Investors are not the answer for every business. In fact, I think most of the people who I see “debating” whether or not they need investors, have the sort of business that investors would never invest in anyway. In other words they are debating whether or not they need investors, when all along no one would want to invest in their business either way.
They are just ignorantly building a small lifestyle business that really isn’t valuable.
Getting investors means selling some of your business. If you can’t sell some of your business, then what is it really worth?
No one is going to have their business forever, so the ultimate goal of any business should be to sell at some point. If you choose not to look that far into the future then that’s fine. But if you do want to look to the future, and consider who might buy your business, then is it such a bad idea to sell some of it now?
For some businesses and some situations, you need outside money. The fact that someone wants to put money into your business and own some of it, is a good sign. It means you are creating something valuable. Maybe you have a vision that stretches more than 5 minutes into the future and you have been able to sell that vision to someone else. This is not a bad thing.
Investors are not always a good idea. But they have their place. I have a business now with 2 amazing investors, a business that would not exist without them. Some of my good friends invest in companies because they’ve been successful entrepreneurs, and this is how they now provide their own value.
If you are a bootstrapped founder, don’t get too distracted by other bootstrapped founders telling you how to do things. It’s OK to have ambitions bigger than creating a reasonable income for yourself. It’s OK to take much bigger risks and it’s OK to build a business that requires you to get other people’s money to do it, if that’s what you need.