3 Truths Every Self-Funded Founder Should Know
Here’s why the startup advice you read online isn’t changing your business and three guiding tenets to help you.
The majority of startups, including yours are mostly funded through personal money. Self-funded startups represent the largest slice of funded startups, and yet, these types of startups are given the least advice unique to their situation.
Aligned with what I mentioned last week in my piece called the “Anti-Silicon Valley Business Plan” — popular online magazines like Forbes and Entrepreneur Magazine typically write for the 1% of startups that are funded by VC and angel investors (led by what I call super-funded founders), not for the remaining 99% that are self-funded, receive friends and family money, and more when launching.
Teachings on the expected pacing, timeline, and agenda of a successful business in these publications aren’t lessons for the self-funded founder, they’re lessons learned from the super-funded founder. There’s a disconnect there that not many self-funded founders realize — the advice they’re reading wasn’t written for them.
What this means for the self-funded founder is that they have to follow a different set of rules from the online articles, and popular business books and memoirs they read on the topic. The decisions and choices entrepreneurs make in these case studies aren’t the same decisions a self-funded founder can make with the expectation they’ll encounter the same results.
It’s kind of like asking an interior designer to decorate the same home with a $1 million dollar budget vs. a $20,000 budget. Even when applying the same skill set, the designer is going to produce something completely different with a million-dollar budget vs. a $20K budget. (I am of course, making the assumption that the self-funded founder will be underfunded compared to a VC or angel-backed business.)
One’s skill set doesn’t completely carry a business owner unless they have the funding to back it up — this is the fallacy that so many entrepreneur publications don’t share — that sharing the strategies and formulas used by a super-funded business won’t produce similar results if under-funded businesses follow it.
To clarify the nuance of how your journey as a self-funded founder will differ from a super-funded founder, I’ve created some guiding tenets to help define your experiences. This applies to all types of self-funded businesses — from coaches, brick and mortar retail, tech startups, to agencies, this advice applies to all of you.
Your growth pace won’t be the same
So you know those tech startups that seem to skyrocket from a team of 2 to 200 in a matter of 24 months? A huge part of that speed is accelerated through a large injection of funding that helps with user acquisition efforts, trying (and failing) a lot of different marketing plans, and buying the manpower needed to bring that scale-up to life.
When you’re a self-funded startup that doesn’t have a very large reservoir of funding to experiment with, your growth pace isn’t going to be the same as a super-funded startup.
This provides a couple of reflections for you:
- If you’re not growing at the pace of a major competitor, look at what their funding structure is like. If their funding sources and size are not like yours, view that as a major culprit rather than reflective of the demise of your product, team abilities, marketing, etc. in comparison to that competitor.
- The “build it and they will come” mantra is BS. It’s more like “buy your users and they will come”. There are a lot of businesses that are VC/angel-backed selling terrible products/services with lackluster branding behind them. They externally may look like they’re crushing it with user acquisition because their funding reservoir is enabling that illusion, but when you look under the hood, you’ll see horrendous attrition, poor conversion at every stage of the marketing and sales funnel, and an audience that holds no allegiance to the brand.
Don’t be easily swayed by the perceived success of a startup that looks like this — if it feels strange that a business would be successful because their product and brand positioning feels off, you’re likely right.
Money is a great magician that creates the veneer of success for short sprints of time. Don’t misattribute your observations during that short sprint as an indicator of their long-term success.
Get behind your passion, not behind the acquisition
Trailing off the previous point — when your growth pace has slowed, it means that you’ll be stationed with your business for a long time. Longer than you probably realize. Whether it takes 5 years or 15 to grow your business to its next phase, you have to love your business and running it to the point that you don’t flinch at the sound of a decade-long commitment.
I have met a good number of entrepreneurs who are pursuing the build of their business with the goal of exiting with a handsome payout. That’s all good and fine, but if you have that desire, you better get behind building an idea you hold true passion for. Otherwise, you will be killed off by a thousand daily cuts, barely breathing by the time you roll into years 3–4 of your business. Whether it’s operations, making payroll, or having the wrong co-founder — these daily woes will all weigh heavily on your stamina.
In my experience, it’s always the little daily things that are monotonous and boring, and a lack of consistency in committing to those “boring” tasks that lead to a self-funded founder leaving their venture.
This is why you can’t create your business with a distanced interest in it. You won’t be motivated by money or equity — those are things that a VC/angel-backed startup founder may be able to rely on as carrots. For you, you will have to rely solely on the burning desire within to bring your idea to life and see it through.
You can’t throw money at the problem, so you have to confront it
As a super-funded startup, messing up and losing money are expected and a bit more flexible to manage. You take it as a loss, possibly throw money at whatever problem is ailing you and keep going. With this kind of financial backing, you are able to make the decision to avoid a confrontation that would pierce your peace — you have bigger fish to fry and you’re not in the mindset of tightly holding on to your money. Money to experiment and play are encouraged here.
When you have to be a bit more mindful about how you spend your money because every dollar counts, it’s much more difficult to throw up the white flag and move on when conflict arises.
Sometimes you decide to ask for your money back if you can. Other times, you feel so hit by the financial loss that you feel compelled to have a strong talk with the person who was the source of the problem. As a self-funded founder, you have to have hard conversations and confrontations that are gut-wrenching to have.
When you’re under-funded, there are multiple opportunities to rock you off your center due to the increased exposure to emotional confrontations. I’m not saying that super-funded startups are void of problems — they just have different problems and don’t have to tag in till much later than the self-funded founder. Self-funded founders have to confront the issues at hand from day one, without money available as a problem-solving tool.
I personally see this as a character-building experience though. You can either look at this as an additional pile of stressors — something you can’t “throw money at” and make go away, or you can look at this as an opportunity to grow as a business owner and human.
As a self-funded founder, you have to teach yourself how to cope, confront, have difficult conversations, and exercise communication and empathy muscles stronger than most. This is a gift — one that’ll possibly push you ahead of the super-funded founders who are never exposed to this level of learning.