Your startup needs to follow the money
Every week, week after week, I get asked a few questions on how to raise funding. The space in which these entrepreneurs are operating change, the way the questions are drafted change a little bit, but the essence of the question remains uncomfortably the same:
How do I get investors to fund my business?
There is nothing inherently wrong with the question per se, what I feel slightly put off by is the stage at which they are asking these questions. The way most of these questions are framed indicates that they are either thinking about starting the business, in the process of starting it or just have an idea for now. And that is slightly disturbing. At a stage where they would be having at least five different problems to find a solution/answer to before breakfast, how is it that getting funded is leading the pack?
The question I came across today was someone’s query on how much capital do they need to ‘start’ an e-commerce business, and well — that one word did it for me.
BUSINESSES ARE NOT BUILT ON TOP OF A PILE OF CASH
Cash always helps. It is always welcome. But it isn’t what makes a business a business. Its customers do. There are multiple well-doing businesses you would be able to find around you that would have met with a cold reception at best when they started, and yet they ended up being ones investors would chase. Why? Because customers were lining up for their product/services.
Your customers define your business. And if I were to get even more technical than that, your repeat customers define your business. That is what is going to take your business from an idea to a formidable empire. Therefore, that needs to be your singular focus.
- Why would consumers buy from me and not somewhere else?
- What is it that I am doing differently?
- Are my customers happy with my services? Can I make them happier?
- Are consumers transacting with me because of the competitive pricing I am offering, or am I offering some real tangible value which can be the core of my selling?
- Will customers recommend my services to their peers even without being offered an incentive to do so? (I am not suggesting you shouldn’t reward them for bringing in additional customers to the business. What I am saying is those rewards shouldn’t be the main reason why they are talking about your business.)
- Are my transactions profitable? Or am I building a business that will be bleeding cash?
MONEY DRIES UP. BUSINESS VALUES DON’T
In the earlier days of ecommerce in India, I used to come across many entrepreneurs who would be of the opinion that the only reason why customers were ordering online was that they were getting a better deal in the process. Nothing could have been farther from the truth. The true value ecommerce brought to the lives of consumers was the convenience.
The convenience of shopping from their workstations, and/or their homes.
The convenience of getting the items delivered to their doorstep.
The convenience of getting it within a couple of days of having placed the orders. (without having to get off their asses at any time)
The convenience of finding a wider and deeper catalog than any of the offline retailer they could have visited would have provided.
Convenience was the key. It still is. Discounts? Well, who doesn’t like to save money? The discounts were icing on the cake. They were just making the deal sweeter for anyone still on the fence. The discounts were and still are giving that nudge to the transactions that could have been postponed for a later date.
Look at the logo for Amazon. That orange segment represents the delight and sheer joy Amazon strives to bring to its consumers. But it also represents “A → Z” — you will find everything under the sun here, that is what the company wants you to remember.
YOU DO NEED CAPITAL. BUT YOU NEED IT TO SCALE
Businesses are building adding one building block on top of another. And as such, it is a process that is continuously changing and evolving. What may work for your business today may not work for you tomorrow.
When you are starting, your first focus has to be on making that first sale and then the first ten sales, and the first hundred sales and so on. This is the stage where you are really putting yourself out there to get orders any which way possible. Facebook pages, whatsapp messages, forum posts, Quora answers — they are all right answers. Whatever works is the theme of this stage. You try it all out, and most ways in which you would be making the sales would be non-scalable ways. Things you couldn’t be doing and shouldn’t be doing at a stage when you are processing hundreds of orders every hour and minute.
And that is fine. You are still testing out the waters, dipping your toes in, learning from your mistakes. Hopefully, by the time you get to the stage where you are getting hundreds of orders each week, you would have started to get a hang of it. You would have started to get a sense of what your consumers are exactly looking for, what makes them tick, what motivates them to, first of all, buy at all, and then what motivates them to buy with you. And having learned all of that, you are much better equipped to cater to a much wider target base than you have been doing so far. It is at this stage, that you are ready to spread your wings. This is when the real marketing kicks in.
Things that have been working for you so far need to be tested out on a large scale. You start setting up digital marketing campaigns, choosing your target audience carefully based on your learnings so far.
Since you are reaching out to more and more potential customers and would be expanding at a much faster pace than anything you have previously done — now you need capital. You will need capital for everything now — marketing, operations, customer support, technology. All of it. But you are needing this capital to scale up your business, a business that has been setting roots in all this while. Granted, the roots are still new and tender. They are still fairly weak. But they are roots nonetheless. This capital will help all aspects of your business. Growth externally, and strengthening the foundation.
This. This is when you raise capital. Raise it for the right reasons.
Bottomline: Your business needs to chase money. But not the investors’, the consumers’. Try to figure that aspect out.
If your business is one that can’t be built without investors’ cash, then most of the time, you won’t be able to build a business. But if your business is one that consumers are buying into and transacting with, finding investors is not an impossible task. After all, remember — investors are in the business of investing.