Many entrepreneurs view raising outside angel or venture investment as a baseline requirement for starting their business – before they even write a line of code or bring a customer on board. An idea, a big scalable market target, a set of powerpoint slides and you are ready to go.
This has predictable consequences: You get told that the company isn't ready or that the market is too difficult. If you can make a great pitch you may end up making a 90 degree turn or going after an adjacent market rather than executing on the business plan you had in mind.
The alternative: Run as lean as you can and raise as little money as possible while you work to prove that your business model and product work. Doing the basic work of testing and tweaking your business model becomes a whole lot more difficult when you are sitting on funds that are supposed to be used to make that same business model come to life.
Here are a few questions to ask yourself to determine whether you should try to raise money:
If you say no to the majority of these questions, you’re not ready to raise money. Avoid that distraction, and keep your head down until you’ve made more progress. Certainly, you’ll want to get feedback from friendly advisors, but don’t expect to raise startup capital from experienced investors until you have sorted out your value proposition, tested and validated it with customers, and are ready to define and meet established business-plan goals.
Remember, there are other choices. Bootstrapping is increasingly preferred for many early stage companies. “Lean” startup approaches are popular for a reason. Just as agile software development is driving more effective development, agile business processes allow you to efficiently hone your business plan. Test and iterate until you get it right, while spending as little as you can.
Most bootstrapped investors are also going to end up tapping some amount of personal savings or friends and family investment. Putting your own money – and that of your friends or family – to work is a focusing event in itself.