Bad advice for entrepreneurs: 1 of 7
 

 “You will need at least a million...”

There is no demonstrable correlation between a start-up’s initial funding and its subsequent success. In fact the correlation may well be inverse: the less money you start with, the faster you learn how to become profitable.

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Monumental research by Amar Bhidé of Tufts University (USA) tends to confirm this paradox.

 

What really happens in America

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Prof. Bhidé conducted 100 in-depth case studies of the fastest growing privately owned companies in the USA.

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All were six to eight years old, had annual growth rates of 35-40%, and had been exceptionally profitable during the previous five years. The median size was around 110 employees. Almost all lines of business were represented and only a few of the star performers were in high-tech.

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More than one in four started with no capital at all, like Dell and Microsoft. Apparently only a handful had needed more than $100k to reach breakeven and become self-funding.

 

Start small and learn fast

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Almost all these companies made significant changes to their pre-launch strategies, adapting quickly to the complex realities of the markets in which they found themselves. None started on a national scale although many got there subsequently and, apparently, without new equity financing.

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I cannot recommend too enthusiastically Prof. Bhidé’s book, The Origins and Evolution of New Business. ISBN 0-19-513144-4.
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Money is like water

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AA business with no money is like any biological cell without water – dead. That said, a healthy cell needs only an adequate water supply. And just as there are different sources of water, there are different sources of money.

 

Money from a spring

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Customers’ money is like spring water and preferable in every way to all others. That is why I encourage entrepreneurs to get their product or service into the marketplace as quickly as possible. They learn, while still very young, to finance growth primarily with their customers’ money.

 

Money from the tap

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Money from banks is like tap water – extremely useful when your consumption is sensible but very dangerous if you do not control the flow.

 

Money from the river

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Taking money from investors is like drinking from a river. The water may be perfectly safe but you cannot tell by looking at it. So you should never drink river water unless the alternative is dying of thirst. Even then it is best to drink as little as possible.

 

Moderate drinking is healthy

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Raising seed capital should be a means and not an end for a start-up. In other words, a company’s strategy should determine its financial needs. It should never be the other way around except in the very short term.

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“You will need at
least a million...”
Technology is what
really counts.
The "first mover"
myth
Your national
market is a
natural platform.
Start in high gear.
Awareness,
awareness, awareness
You must have
an exit strategy.


 
Bad advice
for entrepreneurs
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