Congratulations: You Got Funding! So What’s Next?
You got funding. Woo-hoo! That’s an awesome step forward. So now, what’s next? A recurring dilemma that startups and young small businesses face after they receive funding is what to focus their new funding on. It’s your very own personal Catch-22.
The most advantageous thing you can do for your startup is make smart decisions when it comes to allocation of funds. There are, of course, a million opportunities and ideas staring you in the face, but it is ultimately your job to decide which of these will benefit your startup the most.
1. Don’t spend what you don’t have.
This is pretty much a given: the promise of capital isn’t the same as a signed check and actual money in the bank. Just like we talked about how you can’t market what you don’t have, you also cannot commit to spending any capital unless the check is cashed and the money is in your account.
2. Try to view your company as a third party.
Being incredibly passionate about your product/service can sometimes be a two-edged sword. The passion you feel should be totally separate from the financial decisions you have to make. It won’t be easy but try to make objective decisions when it comes to allocating capital. Your company may be your baby, but it’s time you showed some tough love.
3. Create a budget.
This should probably be done before the money is even in the bank, so that you don’t end up making impulsive (and possibly wrong) decisions about where the money goes when you actually have your capital. Start by creating a goal. Break this goal into smaller pieces and allocate money according to it. Say you have X amount — what’s the next milestone you want to achieve? How can you best do it with the money you have? Clearly define the milestone and break it into smaller achievements which are trackable.
4. Let’s go with 90% honesty.
When you’re incredibly invested in your idea, the line that separates having blind optimism (about your product) and the ability to accept and discuss possible flaws in what you’re selling can become blurred. I don’t advocate complete honesty. It’s overrated and unnecessary, but 90 percent honesty? Yes, yes, yes. Be as honest as possible with your funder and your team about your company’s financial position.
5. Find that balance between spending too much and too little.
Commit to financial discipline right from the start. It can be easy to get a little careless with money, especially when you’ve just received a large lump of it. Sometimes, it’s the other way around, and startup founders are scrimping too much in places where they should be putting in more money. Make sure that one person alone isn’t making capital allocation decisions; it should be done by a team of people. This will give the budgeting process an objective view that it most definitely needs.
6. Raising funds is NOT your goal!
Focus on building a business model and not just on raising capital. The more you raise, the more you lose control over things. So right now, staying focused on building a lucrative repeatable business model is the most vital piece. Most startups think the next step is to move up the ladder quickly in order to get funding. I recommend considering this only if you really need it and to go as late as possible to maximize the valuation of your company.
7. Find a business model that is repeatable and rapidly scalable.
Because exponential growth is the aim, tech startups that get funding should not be looking at just a good product-market fit, but also need to get around to figuring out the business side of things. (For more on that, see Chris Poole’s public declaration of how he shut down Canvas.) Now, a lot of people use customer development as a process to establish a scalable business model. However, in order to be truly successful, entrepreneurs need to be able to make quick decisions to pivot the business model if required.
8. Stay humble.
The best startup founders aren’t afraid to admit that most of the time, they don’t have a clue about what to do next. It’s called being humble — even when your startup is taking off and finally, you’re going places. It’s easy to get sidetracked by all the PR buzz (articles coming out about you and your product; speaking opportunities) and disconnected from your business. It’s time to fasten your seat belt after celebrating the night you got funded and be much more cautious about where you’re going. When you started out, you had nothing to lose. Now, everything is on the line. Stay grounded. Stay focused. Stay humble.
9. Why we believe in going lean.
We’re not saying the lean methodology fixes everything but it certainly sorts out the “Will this work?” dilemma before you’ve poured in too much money into a business plan that may or may not work. The idea of a five-year business plan is outdated. Today’s startups are not investing their time writing intricate business plans; rather they aim to establish a hypothesis for a working business model, test that hypothesis, and make quick decisions when something does not work.