Page 199 - 6 Secrets to Startup Success

178 6 SECRETS TO STARTUP SUCCESS

ture. Highly passionate entrepreneurs represent a special case of this
phenomenon, routinely favoring rose-colored views of the new ven-
ture path, especially when it comes to estimating capital needs. One
of the simplest, most important strategies for ensuring that you make
it through your earliest phase is to secure more than adequate fund-
ing to get your venture to the point where it is self-sustaining.

Even though J.C. Faulkner entered his startup launch with a
highly refined understanding of his target market and a well-tuned
business plan, he took no chances when it came to funding. “My phi-
losophy,” he says, “was that you should raise two-and-a-half times
more money than you think you’ll ever need in the worst case sce-
nario. This was based on great advice from my dad, who saw a lot of
businesses succeed and fail as an accountant.” Accordingly, the D1
business plan projected that the company would spend about $800,000
before becoming profitable, so J.C. secured access to $2.5 million be-
fore taking his idea to market. About one-fourth of this was in the form
of his own career savings, while some money came from private in-
vestors (friends and business associates who trusted J.C. and knew his
track record in the industry) and the rest came from loans and lines
of credit, none of which he tapped.

Although having access to these funds cost him more in terms of
interest and ownership, J.C. considered it well worth the price. “It was
like paying an insurance premium. It cost a bit more but provided a
safety net. Money was one less thing I had to worry about,” he says.
“A lot of potentially good companies have died because they ran out
of money. I looked at the things that could kill us, and I could control
this one.” Moreover, he avoided the constraints that often come with
outside investors by setting clear expectations with his investor group.
He promised them a healthy return on their money on the condition
that they would have no control over how he developed and managed
the venture.

Some entrepreneurs and academics warn against the dangers of
overfunding an early-stage business, arguing that too much capital
can cause an entrepreneur to lose touch with market forces or become
inflexible or undisciplined. My experience is that these dangers op-
erate independently of a venture’s funding situation, biting poorly

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