This is an important question for many startups. Whether you raise money or not depends on a number of factors, including the type of business you’re starting. Some will require more traditional loans, others are perfectly suited to being bootstrapped.
Each financing option – bootstrapping, small business loan, bank loan, angel money, venture capital, etc. – has its place.
So which one is right for your business?
The type of business
The type of business you’re starting makes a big difference. A lifestyle company shouldn’t require huge amounts of venture capital; VCs won’t invest anyway, because a lifestyle company won’t give them the big returns they need.
A lifestyle company is one that supports a good living for you, but isn’t designed for an exit (i.e. selling to another company, IPO, etc.) Lifestyle companies are typically smaller, built around the expertise and skill set of the individual founder(s).
You may need a small loan to get started with a lifestyle company, but more than likely you’ll bootstrap it.
The complexity of the business
Web 2.0 startups are all about simplicity. The Y Combinator model has shown that you can start a business with very little money and create success. But not every business is a Web 2.0 technology company.
Biotech companies often spend years on research and development before they have a product they can sell. It takes a lot of investment to bring a new medicine or biotech product to market.
Work-at-home businesses usually don’t involve any R&D and they can be easy to setup (although that doesn’t mean they don’t require a learning curve!)
The status of the founders
Recently, a debate was raging across the blogosphere about the perfect age to be an entrepreneur. It was centered around tech startups, where the age of many founders getting funding is in the 20s.
20-year olds starting out for the first time, perhaps still at school, don’t need to pay themselves much (if anything) and they have minimum living expenses. Typically, the older you get (until you hit the age of retirement), the pricier life gets, so as you enter your 30s, get married, have kids, etc. you can’t live in a basement apartment on macaroni and cheese. You can, but you probably won’t want to…
When you start a business, you should expect to take a pay cut. Even if you weren’t working before, you’ll probably put money in versus take money out. And if you’re coming from a paying job, don’t plan on earning the same amount. Nevertheless, as you attain a certain lifestyle, you’ll want to maintain what you can, and your funding decisions may reflect that.
Go big or go home
“Go big or go home,” is the philosophy behind Standout Jobs. It’s not the way every startup should be imagined or run but it works for what we’re doing.
What’s critical for any startup is to find your own philosophy and approach. Believe it. Focus on it. Live it. Drive everything towards it.
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