Choose the Right Funding for your Startup

No matter what kind of business you own, ideally, your products and customers should provide all the funding that it needs.  But, reaching that can be tricky and often takes time. Choosing the right way to fund your business as your customer base and revenue grows is critical.  There are a number of different ways to get the funding you need it your company grows.  Here are some of the considerations to keep in mind when choosing your funding sources.

Bootstrapping

Since the goal is to have your customers provide all the funding for your business, why not try that from the beginning.  Nationally, as funding markets are "correcting for years of overly exuberant startup funding," or in states like Vermont where startup capital has always been difficult to find, bootstrapping your company can be an attractive option.

With bootstrapping, you create a profitable product from the beginning and then reinvest the early revenue to improve the product, expand your customer base, and grow your profits.  The process strongly aligns with the principles of the Lean Startup methodology, which emphasizes continuous validated learning.  Bootstrapping requires a strong internal drive, a willingness to build sweat equity, and a lifestyle that gives you the flexibility roll with the inevitable ups and downs of income.

It also requires that you develop and sell a good product quickly. When your only source of cash is revenue from the products you sell, you must have a product that people want to buy from the start. With outside funding, poor product performance can be masked.  When funding runs out for these products, they fail in the marketplace.

Without external investors, you continue to own and control your entire company and you can grow and learn at your pace without answering to anyone else.

Crowdfunding has become a popular mechanism for bootstrapping a new product.  Platforms like Kickstarter and IndieGoGo allow businesses to offer the public early access to a product, typically for a reduced price.  This allows you to test the demand for a product before it is produced and to collect the funds needed to make a product before you deliver it.  Crowdfunding allows you to make larger jumps in scale than would otherwise be possible if you had to make the product before you sold it.

External funding

Not every business is suited for bootstrapping.  Businesses that are very capital intensive will likely need outside funding since it will take a lot of money before they are able to generate revenue.  Similarly, businesses that are looking to quickly grow to massive scale (hundreds of thousands of customers and up) can benefit from outside investment to power the rapid development and scale up needed.

Additionally, not every business owner is well suited for bootstrapping.  If you benefit from having a strong outside source of motivation and direction, bringing in an outside investor may increase your chances of growing your business successfully.

If bootstrapping isn't the right fit for you or your company, you will need external funding.  Choosing the right type is extremely important.  Should you take a loan from a bank?  Should the business take an investment in exchange for equity?  Read below to learn more about options for external financing.

Equity Financing

Equity financing is the umbrella term for investments in which the investor takes an ownership stake in the company in exchange for providing funding.  There are many different types of investors who do equity investments and each is suited for particular types and/or stages of a business's growth.

Angel Investors

Angel investors are typically "wealthy individuals who like to invest their personal funds in startups."  They tend to be less formal than venture capitalists, and while they typically take an ownership stake some look for a percentage return on their investment instead.  Their informality and generally smaller investment size makes them well suited for early investment rounds before other investors would be interested.

Angel investors are also typically people that you already have a trusting relationship with, which makes networking and relationship building vital to securing this type of funding.  Additionally, since angel investors often have entrepreneurial backgrounds, they may be able to provide expertise and access to networks beyond their financial investment.  However, as with any investor, it is important that you can work well with an angel investor long term.

Family and friends may also invest in companies in a similar manner.  Depending on their background, they might act like an angel investor or they may invest based on their faith in you rather than on a deep understanding of your business.  Either way, they are often one of the earliest sources of funding that a company is able to access.

Venture Capitalists

Venture capitalists (VCs) are organizations of investors.  Run by professional investors, they use funds raised from partners "partners such as pension funds, endowments, and wealthy individuals."  In general, VCs are interested in later stage companies that have already shown potential for long-term growth.  VCs also typically look for more control in the company than angel investors do.  Their investments will often require seats on the company's board and sometimes even the ability to replace you as CEO  the company.

Even more so than angel investors, VCs bring business expertise and access to networks to help companies grow.  This, coupled with their ability to make large investments, makes them a powerful partner for companies that are looking to quickly grow to massive scale.  In exchange, they look for much greater control over the company.  This increased control makes it vital for you, as a business owner, to carefully choose which VCs you take investments from.

Strategic Investors

Strategic investors are similar to VCs, but are typically corporations making investments instead of funds.  For example, when Coca Cola invests in an up and coming beverage company or Budweiser invests in a craft brewer, these are strategic investments.  The level of funding can vary greatly depending on the stage of the company.  These company's investment styles are similar to VCs and many of the same benefits and drawbacks still apply.  They often have deep knowledge and experience in the market and can provide expertise that may be impossible to find anywhere else.  In exchange, they are also likely to require high levels of control over the company.

Debt Financing

Finally, debt financing is an option for some companies that do not want to give up ownership or control of the company.  Typically, debt financing comes in the form of loans from banks, though sometimes angel investors will provide funding with a fixed return.  The benefit of debt financing is that you, as the business owner, retain control over your company.  However, banks are also often less likely to lend to businesses with significant risks.  Thus, if your business has high capital requirements but relies on relatively proven technologies you are more likely to be able to secure debt financing.  Keep in mind that debt financing usually gets paid back before any return is given to equity holders.  So, a business with a lot of debt will be less attractive to VCs and strategic partners.

Regardless of how you want to fund your company, you will need a plan for turning your ideas into a business.  Contact us today to learn more about how we can help you prepare your ideas and your business for growth.

Growing Your Business From the Inside Out

Turning fear into action and weakness into strength, learning how to say no, building multiplex ties, and beware of perfectionism.

Transforming fear into growth

Fear of rejection can become a serious block to success for anyone who needs to ask someone else to take an action, like buying a product or even agreeing to a meeting. Facing this fear and seeing it as the signal for a worthwhile risk can help you transform fear that paralyzes you into action that advances your goals.  "If you’re here for growth and transformation, fear will come up over and over again -- a sign that you’re doing just what you set out to do."  Learn how fear can be your guide using a 5 step plan to embrace it.

It's a strength to know your weakness

According to this article, it's easier to identify your strengths than it is to identify your weaknesses.  With strengths, you can often point to concrete evidence of how your strength created success.  Weaknesses are more difficult to see.  They are more likely to be demonstrated by missed opportunities, which may not be as apparent.  While mild weaknesses may not have much impact on effectiveness, strong weaknesses can act as a fatal flaw that seriously hampers an organization and a career.  Read this article to learn how you can identify your weaknesses and take action to prevent a fatal flaw from limiting your success. 

Yes means yes and no means no

In a growing, thriving company, new ideas abound.  Entrepreneurial owners and employees are excited to experiment and discover. In early start-up mode, saying yes to all ideas leads to success.  As complexity grows, too many ideas, too many directions will swamp a growing business.  Saying no or at least not yet to new exciting ideas will ensure that business growth can continue in an organized and intentional manner.  In this article, HubSpot CEO Brian Halligan shares how he learned how, when, and why to say no as HubSpot grew from start-up to scale and provides guidance on how you can learn to say no too.

Networking Advice:  Beyond Asking "What Do You Do"

When meeting new people in a networking situation, our first instinct is to ask "What do you do?"  The authors of this article contend that this immediately narrows the contact to a focus on work and may not be the best way to develop the stronger connections that will best serve you in multiple arenas of life, including work.  "Research findings from the world of network science and psychology suggests that we tend to prefer and seek out relationships where there is more than one context for connecting with the other person. Sociologists refer to these as multiplex ties, connections where there is an overlap of roles or affiliations from a different social context."  Read this article to learn some new and interesting open-ended questions to try at your next networking event to make better connections. 

Perfection is a trap to avoid

Perfection is an impossible goal.  Yet, a recent study confirmed that many young people are trying to achieve perfection based upon unrealistic expectations about their career, the things they own, and how they look.  The focus on perfection is leading to an increase in depression, anxiety, shame, and guilt. Specifically, the authors found that between 1989 and 2016, college students’ levels of self-oriented, socially prescribed, and other-oriented perfectionism all increased by statistically significant amounts. Recent generations of young people are more demanding of themselves, perceive that others are more demanding of them, and are more demanding of others.  Coupled with research demonstrating the destructive effects of perfectionism on mental health, the findings are potentially a forewarning for schools, universities, and employers who may find managing the welfare of young people becomes increasingly important.This article includes tips for teachers, lecturers, and managers that might help create a culture to alleviate the impact of perfectionism.

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For Success, Start with People

Also included: creating peak moments, double loop learning, the banana principle, and more; click through to check out my latest collection of interesting business and technology links.  I hope they spark new insights for you!

Seven Lessons for Start-up Success and Beyond

Innovation, experimentation, and problem solving; customers, culture, and connection; examining bias, creating peak moments, and falling in love.  Seven lessons for Start-up Success has it all.  Even if you are not in start-up mode, these lessons apply.  

Go Deeper with Double Loop Learning

Effective retrospectives are sufficiently deep to challenge existing mental models, examine habitual thinking, and expand possibilities. Single loop learning asks “how can we do what we are doing better” while double loop learning asks” Why do we think this is the right thing to do?”  It involves scrutinizing values, thinking, and assumptions. It's the hardest work and the most important.  Learn the questions that can lead you and your team to this deeper level of understanding.

Human-Centered Company Culture Drives Operational Excellence

Moving your culture from command and control to one of collaboration is a major step on the road to an innovative and lasting business!  Using the GM/Toyota NUMMI joint venture as a case study, this article outlines three important tips for creating a company culture of partnership to drive excellence.  When leadership sees employees as partners, they cultivate a cultural obligation to actively improve the business.

In Meetings: Be Present and Listen Well

These two articles demonstrate the importance of being fully engaged during your interactions with others, providing tips to help you be more engaged.

If You Aspire to Be a Great Leader, Be Present

The first article demonstrates the importance of being present, both physically and mentally. According to the author, “research suggests that there’s a direct correlation between leaders’ mindfulness and the well-being and performance of their people. In other words, the more a leader is present with their people, the better they will perform.”  Learn how to be here now and other ways of being present.

Meetings Would Go Faster If People Took the Time to Listen

In the second article, the author’s tells how her experience coaching a client who is deaf sharpened her understanding of the importance of listening well in one-on-one meetings.  You can learn how to listen slowly and carefully using her four-step process and become a great listener to your employees, colleagues, and clients.

Lessons Learned From Oranges and Bananas

Groups of people offered a choice between a banana and an orange, are much more likely to go for the banana simply because bananas are easier to peel.  Learn how you can apply the banana principle to bring people together and keep people focused. Also, find out why teenagers will scatter when exposed to pink lighting.

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Changing strategies? Make sure you've learned the new capabilities you'll need for success!

Also, networking, taking care of yourself, and Scrum at home; check out my latest collection of interesting business and technology links.  I hope they spark new insights for you!

New change strategy requires new capabilities

Successfully implementing critical strategic changes requires building the skills, knowledge, and processes needed to carry out and sustain them. These capabilities lie at the heart an organization’s ability to achieve results.  Yet some businesses miss this important step in change management by either assuming that if the strategy is logical, then people will figure out what to do or being so prescriptive about what to do that employees give up and revert old behavior.  Developing capabilities requires experimentation, trial and error, and iterative learning to figure out what will work in each organization’s unique culture, functional structure, and environment. This article includes valuable tips and stories that will help you learn more about how to successfully build new capabilities to support the changes you want to see.

How to connect with the right people, even if you don't know them now

The old adage "who you may be more important than what you know" still applies today. Networking to meet business contacts is a critical skill for success.  Whether you are starting your network, adding to it, or trying to take it in a different direction, this article provides insight into three proven strategies. The first focuses on how to get specific about the type of people you’d like to meet in order to guide your existing network in identifying connections they can help you make.  The second focuses on how to work your way towards connections that may seem unattainable at the outset. The third focuses on connecting far and wide through content generation.  Learn how the author built a successful business using all three techniques.

Working through a Personal Crisis

Continuing to perform at work can seem insurmountably difficult when we are experiencing a stressful life event or personal crisis. Fortunately, there are many useful strategies that can help you maintain your balance and your work performance during difficult times.  The key is determining what you need to make it through and then communicating your needs to those at work who can support you, like your manager and co-workers.  Knowing how to do this in a way that protects your privacy and your boundaries will further help you comfortably navigate relationships during this sensitive time.  This article details the steps you can take, principles to remember, and case studies that show how it all can work.

Turning off work at the end of the day

There are many reasons why turning off work is a good thing to do each day.  We all know that it's getting harder to do as electronic devices have made us available 24/7.  This article outlines a five-step disconnection strategy requiring only 10 -15 minutes per day. According to the authors, "While some of the tips and techniques may not seem new, we’ve found that they can be highly effective when used in sequence and combination, greatly reducing feelings of stress and improving work-life balance.'.  Read more and try it out.  Let us know how it works for you.  

Love work so much you want to bring it home? Every household could use some Scrum!

This author's family has been using Scrum to manage their housework for the past year and a half. Is their house cleaner as a result?  Find out more about how Scrum can work at home and learn lessons that can improve your Scrum in the workplace.

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For Continuous Improvement, Mind the Connections Too

My bi-weekly link collection, including: building your purpose, managing stress, and tactical vs. adaptive performance

Finding Improvement in the Margins

With continuous improvement, we look everywhere for processes that lead to waste and inefficiency.  While we most often focus on core processes, connections between core processes must be attended to as well.  For example, the process for entering an order may be very efficient as may be the process for filling an order.  Now, consider the connection between receiving an order and fulfilling the order.  Are the interconnections flowing well?  How do the people who are fulfilling the order find out about the order?  Are people re-entering information?  Are orders missed sometimes because people are too busy? Learn more about how to find opportunities to improve inter-process connections.

Tactical vs Adaptive Performance

Many companies are good at doing what they say they are going to do, in the way they say they are going to do it.  This is called tactical performance. However, in a study of assembly line performance, Ethan Bernstein found that requiring employees to always do things exactly as designed can actually work against improvements in performance.  Building a culture where front line employees are encouraged to adhere to best practices and also find better ways to work - which is called adaptive performance - improves both overall performance and overall employee satisfaction. When employees have clear work procedures and the freedom to seek improvements they become more dedicated to their roles, more invested in their job, and better performing overall!

94% Belongs to the System

Recently, I participated in a lively discussion that focused on exploring the cause of human error.  As we discussed different scenarios, my fellow attendees posited that perhaps errors were caused by unclear instructions, insufficient training, management pressure to expedite something which resulted in important steps being skipped, or a culture that did not allow workers to sound the alarm when something was not right. We were clearly centered on how the system and circumstances surrounding a mistake contribute to that mistake. The group instinctively saw that a problem is rarely caused by the action by an individual person.  Our instincts were right. In fact, by some estimates, direct action by people accounts for only about 6% of the causes of issues.  Read about how to address the other 94% in this article.

How do you Find your Purpose?  You Build It!

We often think in terms of the Hollywood version of purpose in which the universe reveals its grand plans to the hero or heroine.  We know that this rarely happens in real life.  Instead, we must build our own grand plan or higher purpose, remembering that purpose is multi-faceted and ever changing. The challenge is to endow everything we do with purpose, to allow for the multiple sources of meaning that will naturally develop in our lives, and to be comfortable with those changing over time. Read more about finding purpose over a lifetime.

Managing Work Stress

High-pressure jobs or jobs that just aren't the right match for you can create psychological stress that is severe enough to have undesirable physical effects, such as chronic headaches, nausea, or insomnia. Even more alarming, high work stress can even lead to serious health events like strokes. If you find yourself in that kind of job and are feeling those negative health effects, it is essential to take intentional steps to ease your body and mind.  Find out how to identify the source of your stress and learn key strategies that will help you manage it better. Remember, if none of these things seem to work, it may be time for a change.  Your life could depend on it.

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