Here’s the biggest difference I see between self-funded and overfunded software companies–from the inside.
PACE. How fast you have to race ahead to meet your bigger goals.
Founders with lots of outside funding have already made an explicit commitment to their professional investors that “We will go as fast as possible to grow much bigger and sell the company to pay you back.”
That’s just how it works when you raise big money and the clock starts ticking.
But bootstrapped and lightly-funded software practical companies don’t have this “HURRY UP AND GROW SO YOU CAN PAY US BACK!” mentality.
I think fewer than 5% of all software companies should be in a mad race to get market share and get big quickly.
Having pace under the founders’ control usually makes all the difference in the long run, in my experience seeing inside hundreds and hundreds of both kinds of companies.
Practically-funded founders can grow their products, teams, markets, customer-acquisition engines, cultures, and partnerships at a more reasonable–and efficient–pace.
Here are a few reasons why:
- Crafting a product, designing a company, and dancing with customers to find healthy product-market fit takes time. Big funding usually doesn’t help.And great product-market fit is actually what fuels growth AND capital efficiency. Most over-funded startups are kidding themselves about their fit and have just overspent for growth.
- Many markets, especially vertical markets, can’t be pushed too quickly to change their laggard habits, even if you have a great solution that works 10X better.I have seen dozens of funded startups race into a market and spend all their money while their buyers and users slowly come up to speed.
- Founders as CEOs, co-founders as exec leaders, teams as organizations, and habits as cultures all take time and deliberate effort to develop. Moving too fast on these usually creates bigger problems you’ll have to fix later.
- Experienced CEOs and investors know that having proven credibility and a great reputation makes customer acquisition faster and cheaper. But you don’t get credible and build a reputation quickly.True, VC-funding helps with a credibility boost, but it usually isn’t enough. Many buyers know that funding doesn’t always help them too.
- You can run experiments quickly and be speedy about your cycle time and execution. But how long until you find the deeper answer that works and scales? Patience usually pays. It’s better not to declare yourself on the big goals too early.I think being lean and mean and disciplined in the formative years creates better CEOs, products, and companies in the long run.
I see this every week: A practical pace vs a crazy race allow more founders to grow a serious business AND have a reasonable no-regrets personal and family life too.
As Hemingway said about his poverty and his writing, “Hunger is good discipline.”
That’s how I see it. How do you see it?
#practicalfounders
