Cash constraints drive creativity

Life for an early-stage growth entrepreneur is all about balancing priorities. Things need to get done quickly, but resources to accomplish them are scarce to say the least. To ease the situation, many growth entrepreneurs shift their focus on finding investors.

This is an understandable, yet (in many cases) the wrong priority. Seeking investors is a long and laborous process, consuming a lot of time – and especially energy – from the entrepreneur. In the worst-case-scenario it can distract you from actually developing your business. Additionally, securing investment is difficult if your company doesn’t yet have credible proof of customer traction.

So, how do you make do with the money you have?

The advice is simple: use your available funds as efficiently as possible and put your team’s focus solely on potential customers. Avoid spending money until you’ve found a model that your customers are willing to pay for. At this stage, you don’t need office space or salaried employees beyond your core team.

Now I’m not saying this is easy – but it wouldn’t be much easier even if you were rolling in dough. Being cash-strapped and free makes it easier to stay focused, without investor demands pulling your attention elsewhere. Like the Notorious B.I.G said, mo' money mo' problems, though I doubt he was talking about growth entrepreneurship. 

Scarcity of cash is, in fact, a fantastic source of creativity. If potential customers aren’t willing to pay for your product or service, the lack of money constantly and quite literally forces you to refine your idea – until you find a model that just clicks. It’s entirely possible that your company’s business ends up being very different from what you originally imagined it to be.

This approach is called bootstrapping. According to Wikipedia, the term refers to helping oneself without external support. To me, it’s best captured by the phrase: “don’t spend money you don’t have.”

If potential customers aren't willing to pay for your offering, the lack of money quite literally forces you to refine your idea

When a venture capitalist evaluates your company, two threshold questions typically come up: Do you and your team have the required skills, and is there sufficient demand for your product or service? If you’ve already built a credible business using bootstrapping methods, these questions won’t become showstoppers. You can also approach investors on your own terms, since you’re not under pressure to secure funding. Ideally, this allows you to genuinely select the investor that best fits your company. Additionally, the further you develop your business during the seed stage, the higher your company’s valuation will be.

When done right, bootstrapping provides a strong foundation for business success. From experience, I know that a similar creative development process doesn’t necessarily occur if your bank account is already bursting with venture capital at the early stage. In my own case, true creativity only kicked in when the money ran out.

The lessons of bootstrapping are worth keeping in mind even after your company has secured venture funding. This ensures that you use the funds as efficiently as possible.