Winst, geen financiering, definieert een bedrijf

Onze huidige wereld van ondernemers- en startcultuur produceert vele ongelooflijke nieuwe bedrijven, producten en diensten. Het genereert ook een verkeerd idee dat alles wat een bedrijf nodig heeft om te slagen, geld is.

Om te begrijpen waarom dit onjuist is, moeten we eerst onderzoeken wat een bedrijf werkelijk is:

Cambridge definieert "bedrijf" als:

"Een organisatie die goederen of diensten verkoopt om geld te verdienen."

With this we see that, by definition, a company exists in order to make money. A successful company, therefore, must succeed by making money. Why then are so many “companies" competing for funding without first generating income?

Getting outside funding does not guarantee a successful outcome.

It’s easy to believe that getting a bucket of money to spend on your startup will all but guarantee success. This is in fact very far from the truth.

Between 60 and 80% of venture capital backed startups fail. Unfortunately there are limited statistics and breakdowns of the exact numbers, but regardless the numbers serve to illustrate the point:

Getting outside funding does not guarantee a successful outcome.

The other aspect of outside funding (whether through angel investors, venture capital firms or other means) founders often fail to account for is its limiting factor.

Getting outside funding limits what you can and can’t do. It limits your decision making process.

When it’s just you and your team, you call the shots. You determine your product strategy. You determine your growth rate. You determine what can and should be done.

The minute you accept outside money, you also accept outside opinion and direction.

As the saying goes, there’s no such thing as a free lunch.

And there’s no such thing as free capital.

Photo by Gabriel Matula on Unsplash

An investor generally wants one thing: a return on investment. And many times, a significant return, a quickly as possible.

In some cases it can be beneficial to have people with a vested interest in your company driving direction and giving their thoughts on strategy.

In most cases, however, this can result in friction between the founder and the money source and can cause unnecessary stress.

Let’s look at an example:

Say you’re trying to build a company with a mission to help under-funded orphanages. You sell toys to children all over the United States and donate 50% of the profits to carefully selected and screened orphanages where the money will make the most positive impact.

If you build this company yourself and it’s profitable from the beginning, you can do this.

But now what if you accept outside funding? What happens when you don’t experience exponential growth, but you hired a bunch of additional staff, a marketing team, and rented an office space?

Chances are, to keep the peace with your investor as well as your newly expanded team you’ll need to cut into the 50% of profit that’s being taken out and given to charity.

Now you’re betraying your original purpose for starting the company and every day becomes a grind.

Not a great way to go.

This may seem like an extreme example but it’s much more common than you might think.

Building a profitable company from the beginning, on the other hand, does guarantee one thing: you’ll make more money than you lose. It will also allow you to stay true to your original purpose.

You might not grow as fast, but you’ll be able to scale naturally.

The other aspect of this to consider is that a company that is already profitable is more appealing to a potential investor.

Take a look at it for yourself:

• •Company A: We’re small but we’re currently achieving a 40% profit margin. With additional funding we’ll be able to increase our marketing efforts and, based on our current calculation, reach a 65% profit margin.
• •Company B: We’ve got this great idea and we’re super passionate about it. We haven’t quite figured out how to monetize it, but we’ve got a few ideas.

Which one would you give your money?

If you focus on actually generating profit with your new venture you’ll build a real business. This will give you the freedom to decide whether you want outside funding or not.

When you’re making money you can accept funding and it’ll be easier to find, but you won’t have to.

That’s the beauty in having a company that’s true to the definition thereof.

It may not seem glamorous to stay small, work hard, increase profits and gradually build your company. But in truth, it’s the way to build an actual business.

Billion dollar valuations are fun to dream about. But having a profitable startup is practical.

In the end, the success of your venture will depend on your ability to turn a profit. The sooner you focus in on this, the easier it’ll be to expand.

Thank you for reading!

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