{"id":1310,"date":"2021-09-27T17:41:08","date_gmt":"2021-09-27T17:41:08","guid":{"rendered":"https:\/\/janbosch.com\/blog\/?p=1310"},"modified":"2021-09-27T17:41:09","modified_gmt":"2021-09-27T17:41:09","slug":"entrepreneur-lesson-1-too-much-early-funding-kills-a-startup","status":"publish","type":"post","link":"https:\/\/janbosch.com\/blog\/index.php\/2021\/09\/27\/entrepreneur-lesson-1-too-much-early-funding-kills-a-startup\/","title":{"rendered":"Entrepreneur lesson #1: Too much early funding kills a startup"},"content":{"rendered":"\n
\"\"
Image by PublicDomainPictures from Pixabay<\/figcaption><\/figure>\n\n\n\n

My grandparents from my maternal side were farmers and had cows. Their mature milking cows were put in fields with lots of lush grass and could eat what they wanted. The young cows that hadn\u2019t yet been bred were put in the fields that had already been cleaned out by the milking cows or on poor pastures. My initial belief was that this was a cost-saving measure as the young cows didn\u2019t give milk yet, but that was wrong. The real reason was that feeding young cows just enough so that they don\u2019t go hungry but stay lean causes them to become bigger cows when they grow up, with a stronger frame and better milk production.<\/p>\n\n\n\n

The funny thing is that the same is true for startups. In my experience, having too much funding during the early stages of a startup is counterproductive and may well cause the venture to fail. Most founders I talk to about this shake their heads in disbelief as they feel they\u2019re constantly scraping by, closing deals by bending over backward for customers and permanently walking around with a feeling that they\u2019re deviating from the company\u2019s original mission.<\/p>\n\n\n\n

Also the fear of running out of money and disappointing the friends and family who invested their hard-earned savings as well as the employees who are depending on you for their paycheck is real and results in existential angst in anyone with a bone of empathy in their body. Nobody wants to be a failure and for all the noise of the \u201ccelebrate your failures\u201d movement, everyone I know prefers to celebrate other people\u2019s failures.<\/p>\n\n\n\n

The point is, however, that in all your jockeying for closing deals with customers, being responsive to their needs and wishes, adjusting your vision to the feedback you\u2019re receiving, you\u2019re navigating the design space of your offering and gradually nailing the content and functionality you need to have to build a successful company. advertorial <\/p>\n\n\n\n

When a startup has too much funding in the early stages, the founders and employees tend to focus internally, build products based on their own opinions and ignore customer input. Because of this, the constant interaction with the market doesn\u2019t result in a constant adjustment to customer input. Instead, the customer feedback is explained away and often translated into features that will be added to the offering later after we\u2019ve built what we\u2019re certain the customer needs.<\/p>\n\n\n\n

Another consequence is that the company rapidly builds up to a burn rate that vastly outpaces the revenue coming in, causing a perpetual dependency on raising more money. And, believe it or not, raising money is actually addictive. In lieu of market success, it\u2019s incredibly satisfying to at least have found investors who believe in your dream and are willing to carry the company forward for another couple of months. The problem is, of course, that raising money only confirms your storytelling ability, not the viability of the business. Also, all the time you\u2019re busy raising money, you\u2019re not building the business with customers.<\/p>\n\n\n\n

There\u2019s a time when startups really benefit from large amounts of funding, which is after they\u2019ve nailed the offering to the market and the investment goes to executing a scaling strategy that allows for regional expansion as well as expansion to serve multiple industries. However, this should happen after you\u2019ve nailed the offering and you have the revenue to prove it.<\/p>\n\n\n\n

In the end, the balance for investors is to give startups enough funding so that they don\u2019t have to raise money all the time and the founders can focus on building the business. And, at the same time, not so much that the company stops feeling the dread of possible extinction (staring into the abyss, as Elon Musk calls it), which causes the focus on adjusting yourself to customer needs rather than a fictive, unconfirmed belief about the market. As a founder, most of what you believe about your market, customers and offering is wrong, but you don\u2019t know which part. Constant interaction with the market causes you to kill your darlings to get to a viable product and company that manages to become cash flow positive and, preferably, grow like a weed once you\u2019ve nailed it. But for that, you need to stay lean, just like my grandparents\u2019 cows.<\/p>\n\n\n\n

Like what you read? Sign up for my newsletter at\u00a0<\/em>jan@janbosch.com<\/em><\/a> or follow me on<\/em> janbosch.com\/blog<\/em><\/a>, LinkedIn (<\/em>linkedin.com\/in\/janbosch<\/em><\/a>), Medium<\/a> or Twitter (<\/em>@JanBosch<\/em><\/a>).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

My grandparents from my maternal side were farmers and had cows. Their mature milking cows were put in fields with lots of lush grass and could eat what they wanted. The young cows that hadn\u2019t yet been bred were put in the fields that had already been cleaned out by the milking cows or on … Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"generate_page_header":"","footnotes":""},"categories":[9,10],"tags":[],"_links":{"self":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1310"}],"collection":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=1310"}],"version-history":[{"count":1,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1310\/revisions"}],"predecessor-version":[{"id":1312,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1310\/revisions\/1312"}],"wp:attachment":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=1310"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=1310"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=1310"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}