Startup Dilemma: to scale up frugally or go big with funding?

Over time, startups feel the need to put foot to the pedal in order to grow faster and, bigger. It may be scaling up of operations, scaling up of the product or, offering the market, product extensions. To do so is imperative in order to stay competitive; it is imperative for survival.

Whether scaling up the product offering; looking at other markets for introducing the product; or introducing product extensions, each of them are cost intensive. It is at this juncture that the usual question sets in – whether to make use of technology and scale up or, await funding to make a grand entry. Option 1 will mean living frugally till fresh sales starts bringing in the moolah. Option 2 means having a funded, cushy, comfortable seat to sit on while the team implements the next level of the business’ offering.

A classic Chicken and Egg dilemma…

Is it possible that both funding and scaling up can happen together? Can it? It seems like a simple question with an enormous yes for an answer. But the truth may only be far from it. Whether scaling up on their own or pitching for funding, entrepreneurs and startups have to go back to the drawing board. It is a long and tedious process, needing decisions to be taken after carefully weighing the pros and cons of either approach.

Entrepreneurs today have many options for funding. So doesn’t that sound like it is easier to get funded than having to bootstrap? May be not. This is because, investors are wary of businesses that are not willing to pull themselves up and get it rolling on their own. They want to see the spirit that will move the business to the top slot. They want to see team effort, creativity and the never-say-die attitude that will guide the future and culture of the company they are investing in. Investors are funding what they believe will become a great business; which means that they need proof of that from the founders. They are investing in ideas and ideologies together. Therefore, not attempting to scale up your business on your own strength and awaiting other people’s money may not play to your advantage after all.

Businesses that focus on product and technology have continually proven to beat the odds, succeed, and receive funding eventually. This is because such startups or businesses are sending out strong feelers about the seriousness, passion, commitment and approach of their founders towards them. Going bootstrapped may mean going frugal till the revenues start flowing in. It also means not being able to cross bigger geographical barriers immediately and take the product to a larger audience, for example. But if it is possible to cross the smaller bridges and, prove your point to the people looking to invest in your company, then by all means, businesses should do it.

Some entrepreneurs begin working towards receiving funding right from the start. This consumes all of their time and energy, making way for the product offering to fall behind the expectations, lacking from their proper guidance and involvement in an intimate manner. For such a business to get an interested investor is difficult. Being funded to make your idea a reality is a temptation and a dream for most entrepreneurs. These entrepreneurs equate funding to success. They witness how their competitors are acquiring funding partners and charting a smoother course. But never has one rule been applicable to all in the business ecosystem.

Bootstrapped businesses often display a fight in them that is rare to see in a funded venture. A bootstrapped startup has everything to lose and hence, works harder to achieve its goal. This process of improving upon ideas and working harder develops into a habit and then the culture. Efficacy of the product and a customer acquisition strategy that works definitely gets investors eyeballs but being funded from the inside makes a business look stronger to the investor giving him/her the confidence to invest in it.

So how does a chicken or egg conundrum get sorted? Work on the chicken, say investors. Getting it to deliver the golden egg through funding is only a matter of time.

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