In business, more money is not always a good thing
By taking large amounts of money from investors, you give up some control over your business. A better strategy is to only raise money when you truly need it.
One of the biggest mistakes I made during my days as an entrepreneur was raising too much money.
Because our business was successful, we had investors eager to offer us money. But by taking money when we really did not need it, we found that it created more problems than benefits.
Jeff is the Jack C. Massey Chair in Entrepreneurship and Director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn.
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When taking money from outside investors, you give up part of the control over your business.
"One of the reasons most people start a company is so they don't have a boss," says Jake Jorgovan, co-founder of Rabbit Hole Creative, a high-tech graphics and marketing firm. "If you take out funding, then you have an investor looking over your shoulder at every decision you make."
Taking outside money can also lead to building overhead and creating an infrastructure that can lock you into a specific business model as you attempt to make good on the things you have committed to in your business plan.
Michael Brody-Waite, CEO of InQuickER LLC, prefers to keep his company lean and adaptable even though it has grown to annual revenue of seven figures.
"We chose to stay agile and not lock ourselves into a rigid trajectory unnecessarily," Brody-Waite says. "The cost of taking money in terms of distraction and complexity is well-documented. Our company is built on maintaining less mass, agility and out-simplifying our competition."
Too much funding can also propel a company into a level of growth for which it is not prepared.
"Bootstrapping your growth allows you to grow at a pace that is comfortable for you," Jorgovan says. "Investors will want to see rapid returns on investment regardless of what that means for you. When you bootstrap a company, you can build it into the company that you want to work in. You can build it into a business that you enjoy going to work at every day."
Like many entrepreneurs, both Jorgovan and Brody-Waite have felt the pressure to consider taking funding from investors. It seems to be part of the entrepreneurial culture, especially in businesses that have the potential for significant growth. There seems to be an expectation that seeking investment capital is a standard part of starting such a venture.
Although both businesses have seen successful growth through bootstrapping rather than fundraising, there may come a time when bringing investment money into each company makes sense.
"I expect us to take money eventually," Brody-Waite says. "However, the cost in time, agility, complexity and mass would have to be significantly lower than the tangible benefit to our company."
When it comes to seeking investor money for an entrepreneurial business, the goal should never be to raise as much as you can.
Instead, your goal should be to raise money only if you truly need it. And even then only take as much funding as is absolutely necessary to reach the goals of the business.
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