Business Strategy
The Influx of Too Much Money Can Be Bad for Your Business
Spend it like it's your own
Money solves everything. At least that's what a lot of entrepreneurs believe. A significant influx of investment capital into your business can work wonders. However, there is a tendency to use money that comes from outside sources differently than you would use your internally generated cash. Let's face it. It's someone else's money. So you are apt to spend it differently than the precious cash that you've earned over time from your business operations. If you are lucky enough to get some money from investors in your company, be careful how you spend it.
Hiring more people isn't necessarily the best use of capital
With the influx of capital comes the pressure to spend it. Investors want to see results. So there is a natural tendency for CEOs to start hiring people in the hopes that more people will mean more sales. That strategy may work where the capacity to use those people effectively exists. However, it can be a problem for companies that are in the process of creating new markets and products to serve those markets. It may do you no good to hire an army of sales people if your challenge is to change the way people think in your target niche. Sales people sell. They don't necessarily create demand for new products. You may also find that enlarging your engineering staff to build or enhance products results in a lot of excess capability that doesn't create incremental sales. It takes time for market-driven products to ripen. Save your capital for when you can most effectively deploy it to harvest sales.
Bootstrapping is a viable business strategy
The '90s made it seem old fashioned to build a business organically. It is true that CEOs are under even more pressure today to grow as quickly as possible, because the exponential rate of change can overtake a business if it moves too slowly. For well-defined markets where the competition is fierce, there is certainly no time to waste. However, for businesses that are creating new markets and carving out new niches in those markets, it may be better to bootstrap your business. This means that you build on your capabilities and leverage successes as efficiently as possible, thereby creating the right products and relationships in the market. Use your capital judiciously to accelerate this process, not to replace it.
Don't lose sight of your business
Investor attention can be intoxicating. It's a validation of your vision and your ability to execute on that vision by people who seem pretty smart. However, make sure that you use your new-found capital to grow your business and realize your true vision. It's extremely easy to spend too much too fast -- and lose touch with the market that you were trying to conquer.
Money solves everything. At least that's what a lot of entrepreneurs believe. A significant influx of investment capital into your business can work wonders. However, there is a tendency to use money that comes from outside sources differently than you would use your internally generated cash. Let's face it. It's someone else's money. So you are apt to spend it differently than the precious cash that you've earned over time from your business operations. If you are lucky enough to get some money from investors in your company, be careful how you spend it.
Hiring more people isn't necessarily the best use of capital
With the influx of capital comes the pressure to spend it. Investors want to see results. So there is a natural tendency for CEOs to start hiring people in the hopes that more people will mean more sales. That strategy may work where the capacity to use those people effectively exists. However, it can be a problem for companies that are in the process of creating new markets and products to serve those markets. It may do you no good to hire an army of sales people if your challenge is to change the way people think in your target niche. Sales people sell. They don't necessarily create demand for new products. You may also find that enlarging your engineering staff to build or enhance products results in a lot of excess capability that doesn't create incremental sales. It takes time for market-driven products to ripen. Save your capital for when you can most effectively deploy it to harvest sales.
Bootstrapping is a viable business strategy
The '90s made it seem old fashioned to build a business organically. It is true that CEOs are under even more pressure today to grow as quickly as possible, because the exponential rate of change can overtake a business if it moves too slowly. For well-defined markets where the competition is fierce, there is certainly no time to waste. However, for businesses that are creating new markets and carving out new niches in those markets, it may be better to bootstrap your business. This means that you build on your capabilities and leverage successes as efficiently as possible, thereby creating the right products and relationships in the market. Use your capital judiciously to accelerate this process, not to replace it.
Don't lose sight of your business
Investor attention can be intoxicating. It's a validation of your vision and your ability to execute on that vision by people who seem pretty smart. However, make sure that you use your new-found capital to grow your business and realize your true vision. It's extremely easy to spend too much too fast -- and lose touch with the market that you were trying to conquer.