In Silicon Valley, the narrative goes that 90 percent of startups fail--a death rate that would give a lemming the sweats. The actual data is murkier, depending on the timeline, what constitutes a startup, and the definition of failure. But what all the statistics show is that the vast majority of startups do indeed finish face-down.
So why is this? Is it because most founders have bad ideas? Because they don't try hard enough? Doubtful, given the grit and intelligence it takes to start your own company in the first place. Rather, there's a single, all-encompassing factor--not discussed nearly enough in business schools--that largely determines one's ability to survive the gauntlet of starting a business from scratch. That variable? Whether one has enough capital to finance the company through the Spartan, seemingly interminable valley between its launch and its first moment of meaningful profit.
This stretch of a young company's existence--which was five to 10 years for most of the veteran startups with names you know--is a veritable Oregon Trail of perils and pitfalls during which many would-be industry pioneers suffer game-ending cholera. Much of the encountered trouble revolves heavily around the expected nuts-and-bolts tasks of company building: the product, the people, timing, customer acquisition costs, promotion, the marketplace, brand building, you name it. Developing all of these things efficiently and in concert is incredibly tricky on its own--akin to getting a thousand Thanksgiving dinners to the table at exactly the same time while everything is still piping hot and delicious. But the task goes from difficult to virtually impossible if you can't pay for the goods and employees it takes to pull off the feat.
Because of the gut-wrenching difficulty of this period in a company's development, it's not unusual to cling to milestones while going through it: a successful beta, that first round of user testing, launch day, your first customer. And finding reasons to celebrate these moments amid the brutal grind of willing a startup to life is, in general, a healthy activity. But make no mistake about it, the milestones that rank above all else for a young company are about one thing: fundraising.
This may sound cynical to entrepreneurs trained to think that dogged pursuit of the stated purpose of their business is the best path toward profit. I don't disagree. I just find it easier to be purpose-driven when the hot, dank breath of indebtedness isn't forming beads down the back of my neck.
Besides, making funding a primary focus of your young company isn't beneficial solely because it buys stuff. An investment is most helpful in that it affects a bigger game of will-it-live-or-will-it-die that (if you're lucky) is likely being played around your business by others who might profit from it. And in this game, every outside investment pushes your odds of success higher by staving off your single greatest threat: capital risk.
When you get a significant piece of funding for your business, you're getting more than the ability to keep the proverbial lights on; you and your investor are essentially guaranteeing your survival into the next round of the competition--a strategic advantage so compelling that even a Vegas bookie might be uncomfortable claiming it. For venture capitalists, investing in companies is the very definition of picking winners and losers. After all, they don't get jets and cool offices by placing bets; they get them by literally changing the bet every time they lay their money down.
Of course, this sounds fantastic if you're on the receiving end of an investment. But what if you're a fish in the sea of entrepreneurs trying to hook a serious piece of funding? How can you take a cue from the investing class and tilt the scales of fate in your favor the way they do?
The answer is that you literally have to make fundraising a core competency of your business. Not something you do on the side. Not something you hope to accomplish by making a good product and waiting for the phone to ring. I'm talking about putting the act of raising money--actively and audaciously--right up there with that carefully curated mission statement and your intricately crafted business plan. Why? Because if it's done well consistently, fundraising will literally eliminate your risk of failing--and that's a pretty big worry for a young company to be able to take off the table.
I'm physically reminded of the importance of fundraising for a young business whenever I drive up Interstate 5 from Los Angeles to my hometown of Sacramento. Along the highway--in the middle of once-bountiful agricultural land rendered bone dry by water policy and years of drought--sits a semitrailer with a message scrawled across its face: "Food grows where water flows." It's a stark reminder that even the best farmers in the world can't conjure crops without this one life-giving ingredient.
In the world of startups, there's a similar corollary: "Companies grow where capital flows." And the entrepreneurs who experience startup success work hard from the very beginning to make sure it keeps flowing their way--from their earliest days of company building all the way until their venture is making money of its own.