3 Reasons Why A Lack of Funding Could Become Your Startups' Secret Weapon VC funding has become more scarce over the years, posing a challenge for many startups. But, a lack of funding can be a secret weapon for businesses.
By Dean Guida Edited by Micah Zimmerman
Key Takeaways
- VC funding is not the golden ticket to success many businesses believe it to be.
- While the backing of investors can certainly skyrocket a company to success, it's not the only way for companies to be successful.
- A lack of VC funding requires entrepreneurs to analyze every facet of their business, which can be a secret weapon to building a profitable business that withstands the test of time.
Opinions expressed by Entrepreneur contributors are their own.
Every startup begins with a vision. But to make that vision a reality, entrepreneurs and aspiring leaders need more than a dream — they need money. This typically leads to a chase after what many consider the holy grail: funding. However, with venture capital (VC) funding hitting a decade-low in 2023, funding has become more scarce and especially hard to secure for those companies in their early stages.
Many young companies don't realize that funding is not the only path to success. In fact, a lack of funding can be a company's secret weapon.
In the early stages of building a company from the ground up, a sudden influx of cash can create a false sense of security and influence more risky decisions, some of which may not be sustainable long-term. But without a financial cushion, companies are forced to thoroughly examine every decision they make. This ensures they're not taking on too much risk, especially in the beginning, and driving enough revenue to keep the business growing.
Here are three ways entrepreneurs can use a lack of VC funding to their advantage to create a successful, revenue-driving business.
1. Learn from every mistake
Companies flush with VC dollars tend to throw cash at problems that need to be solved rather than funded. Without financial backing, companies must develop the discipline to get to the root of problems and fortify the foundation to ensure longevity.
Mistakes are going to be made — they're inevitable — but it's important that entrepreneurs learn from them to avoid making the same mistake again. A series of slip-ups can be detrimental to a company, especially in its early stages. To turn errors into a learning experience, companies need to examine every piece behind what went wrong.
When mistakes can be addressed with money, it can be easy to brush them over and move forward without ever understanding what went wrong.
Making mistakes — and understanding the why behind each one — can also serve as fuel for future success. Adopting a mindset of "less is more" allows entrepreneurs to reap the rewards of perseverance and grit and can instill confidence in them as they find success on their own.
Related: How to Turn Your Mistakes Into Opportunities
2. Generate revenue first and bring big ideas to life later
Entrepreneurs are eager to bring their visions to life, and with the cash to do so, it's easy to go all in–and fast. But, investing in big ideas before finding market fit or demand can be make-or-break for a company.
An innovative idea only becomes a successful product or service if there's an audience for it. And that's where many companies can go wrong–they have a great product, but it's not solving a problem in the market. This can be a struggle for companies with and without funding, but with money in the bank it can be easier for companies to dive straight into development with understanding the market's needs first.
When companies have to rely on themselves for funds, they need to generate revenue quickly. This means they're going to spend every penny making sure their product or service is something that addresses a market need and will be bought by their target audience. By prioritizing profitability with practical applications from the start, companies can build a solid foundation and create a secure company that can innovate thoughtfully. There's always room for big ideas, but it's important to not rush into them — no matter how tempting they are.
Related: 6 Practical Tips For Handling Mistakes at Work
3. Build for the future
New startups emerge every day across industries. In such a quick-moving and highly competitive industry, there's no guarantee that a company will remain a company even six months later. It's this in-the-moment mindset that can lead entrepreneurs to prioritize building for the short term.
While it's impossible to predict the future, you can prepare for it. I built the global tech company Infragistics to withstand nearly four decades of the always-evolving technology industry, from the 90s dot-com tech bubble to the explosion of the Internet to the 2008 recession. This wasn't because of luck or because we were in the right place at the right time.
We never took a cent from investors, which helped us build a strong foundation for our future successes. We prioritized making decisions that would drive revenue rather than because "we wanted to," and we learned from every mistake. It's not the path for every company, but it is the right path for us.
Every decision can feel like the most important decision made without the support of funding. This is an advantage. Every carefully curated decision builds a foundation that supports a successful company. With a strong foundation, companies can be more adaptable to industry shifts and overcome challenges in the long run.
