I found this gem on LinkedIn, by Jon Oringer, the CEO of Shutterstock. In this article, Oringer tells us to struggle to make things work without venture capitalists for as long as possible.
Just a note: If you don’t have an account, you really should sign up for a free one. There is a lot of good business advice, friendly people, and good groups to join to bounce ideas off of.
For those of you that don’t have a LinkedIn account, here is the meat of the article.
What are the advantages to bankrolling and not taking venture capital?
- You will fail faster. It took me 10 tries to get to Shutterstock. Most of my startups never made it off the ground. Being an entrepreneur means being able to pivot quickly, shut down a business that isnât performing and move on. If you use somebody else’s cash, you may be forced to continue even though you know itâs time to move on.
- Every dollar counts. I was hyper-focused on ROI from the start when I was buying Google AdWords keywords. Since I could feel the money moving out of my own bank account, I was very sensitive to my return on investment. There was no room for error. This efficiency later translated into a complex lifetime value calculation that drove our acquisition model to this day.
- You will concentrate on profitability from the start. All businesses need to create value at some point to survive. While some companies have had successful exits without profits, they are few and far between. By building profitability into your model from the start, you will be able to start scaling. Self-funding will force profitability thinking at every stage.
- You will own more of the company later. The earlier you are subjected to dilution, the less of the company you will own in the future. Venture capital rounds often involve loss of control, and a majority of the company to be sold.
What are the advantages to taking venture capital?
- I recognize that self funding isnât an option for everyone. If a large amount of capital is required and not taking on a venture round will be truly detrimental to getting your company off the ground, then by all means do whatever you need to do.
- Often venture partners provide support with areas that the company is weak in. If you need help hiring, scaling, or operating, often a venture partner can provide this help as part of the deal. If you donât take capital, youâre on your own.
How do I make sure that my startup uses as little capital as possible?
- Use as much open source software as you can. Use MySQL instead of MS-SQL/Oracle. Use Linux (and specifically free versions like CentOS) instead of Redhat. CPAN alone has over 120,000 Perl modules that are already written – so why re-create the wheel?
- Learn how to code. There are great affordable online learning platforms that can help you learn how to code, create html pages, link up databases, etc. Learn as much as you can because the more you can do yourself, the less you will have to hire.
- Be every job. It may seem overwhelming, but itâs possible. When I started Shutterstock I was the customer service rep, the website developer, and the first photographer. By making sure I gave each role a shot, I knew exactly what I needed so I didnât overhire. I wasnât necessarily good at each job, nor was my expertise even close to each job, but I learned a ton and got to delay some hiring. This culture of lean innovation is still very much alive at Shutterstock and has contributed to much of our growth.
Use your product as if you were the customer. Not only will you get to know your own product better, but youâll be doing quality assurance work and testing throughout the process.
Wise words, I’d say. I, personally, have integrated this basic philosophy into every fibre of Insanitek’s start up. Yes, I have to work harder to make ends meet, I can’t do as much as I’d like, and things move slow. I’ve learnt patience among being hyper aware of money in order to make this dream come true.