The good folks at 37Signals, who it is no secret have greatly influenced my thinking on the topic, talk about the importance of self-funding a start-up. Outside funding is “Plan B” as they like to say. They come from a perspective of a start-up founded by developers. Get 2-3 people, they contend. Write code. Get people to use it. Charge them. Rinse and repeat.
I have been advised by other entrepreneurs that I know to “hold onto equity” (because you can’t get it back easily) and to “hold onto my money” that I might have personally invested by finding a partner who can help me develop a product. I am not sure how I do both of these things simultaneously, although both are great counsel from folks I trust who have years of entrepreneurial experience.
One of the best pieces of advice I received about funding came over a year ago from a serial entrepreneur that I heard speak at a Portland Business Journal event. He talked about heading up a joint venture between two companies that shared ownership 50/50. He said when they needed another round of funding, the 50/50 partnership failed to deliver because one company couldn’t afford to invest further, but didn’t want to give up control. The other company wanted to invest, but was contractually limited from investing more than the other. The business ended up failing and the take-away was that the capitalization method should match the business strategy.
So, what is the business strategy of Creative Outlet Labs and how I am answering the question of capital? The strategy is simple. To to good by becoming the leading provider of personal tributes, allowing individuals to appreciate, collaborate, and celebrate those who are remarkable. To do this, we don’t need to be big. We just need to be better than the alternatives and utilize all available technologies. We don’t need to have the most features. We need to focus and make it easy for people to get from point A (the idea and the occasion) to point B (a finished tribute) in rapid fashion. We don’t need the backing of a large company to get started and make a difference (although perhaps that is an exit strategy).
So, for now, the capitalization plan is to self-fund and retain the equity. I am a realist. I know, the business and the products may not always be my baby, but I can ensure it gets off to a good start…narrowly focused on doing good.
