There's a recent article on TechCrunch that details how many prominent Silicon Valley startups are succeeding despite losing large sums of money - and wonders if that's a formula for other startups.
Uh, in a word, no. In two words, hell no!
I work regularly with entrepreneurs who are terrified of debt and counsel them that it can actually be their friend. The saying "You have to spend money to make money" remain true, but I would never counsel a company to go into excessive debt, especially when it was already bleeding money. Nor is it healthy to continually lose money, something a first-year economics major could tell you.
The kind of companies that TechCrunch mentioned - Uber, Dropbox, Airbnb and Salesforce, to name a few - are exceptions to the rule. Turns out that these companies aren't profitable or took a long time to get into the black.
For whatever reason, those companies gained cachet as game changers and became investor darlings. Investors are willing to take an extra-long view of their prospects and are waiting for the veritable pot of gold.
In some regards, these companies are outliers, as defined in Malcolm Gladwell's bestseller of the same name.
That's all well and good, and some of those investor bets may pay off big. Still, companies can't keep losing money indefinitely, and it wouldn't be a surprise if some of those big names eventually go down in flames.
And no offense, but your company isn't likely to be a game changer.
Sure, you may have a good, even great, idea for a product or service. You might even build your business to a prodigious size, sell it for a ridiculous price and retire at age 42 to some place that once was featured on Lifestyles of the Rich and Famous.
But you probably won't.
You very well may succeed and enjoy a comfortable life, but you're going to have to work your business and put one leg in your pants at a time.
That means gradually building your business and taking calculated risks. Those risks will include loans. Your best bet (and it's more accessible than you think) is likely in obtaining a loan backed by the federal Small Business Administration (SBA); those loans offer a winning combination of reasonable interest rates and generous repayment terms.
If you find yourself struggling, other, less desirable options may present themselves. Those include the possibility of selling an equity share in your company.
Yes, the thought of not having debt hanging over your head may be appealing, but equity partners are decidedly a mixed bag. What happens if your partners have radically different ideas about the direction to take your company? It's not out of the realm of the possibility that you could find yourself marginalized (or even forced out) of your own company.
Another saying comes to mind: "If you take the king's shilling, you do the king's bidding."
None of this is meant to squash your dreams of fame and fortune. To the contrary, by taking a measured, reasonable approach, the chances of you reaching your goals are likely much higher.