Call it a gamble, call it rocket science. There are many names entrepreneurship goes by. While the entrepreneurial ecosystem continues to be abuzz with terms such as AI, fintech, and big data, and even as wealthy investors continue to deliberate on whether bitcoins or start-ups are a better bet, let’s take a look at what can actually help start-ups make the cut.
Many entrepreneurs make the beginner’s mistake of focusing only on capital inflow at an early stage, when the real sustainable capital comes from acquiring customers. Capital-funded and customer-funded growth strategies are both good fits at different phases in a start-up’s lifecycle. If you’re thinking long-term, a customer-funded growth path is a great place to start.
A common challenge early-stage start-ups face when they adopt a capital-funded strategy is that it does not leave a lot of room for them to grow at a natural pace and shape up as envisioned. They’re no longer playing by their terms. The focus is on earning money quickly, even if it means taking risky bets, so the investors get their money back.
Growth funded by customers
On the other hand, a customer-funded growth roadmap is fuelled by networking, mentoring and revenue opportunities, which help in gradually and steadily moulding a product or service so it is market-unique and market-ready. It then becomes easier to get investors on board at a later stage; there’s nothing as reassuring to a VC as a promising business that offers bang for its buck, and tell-tale customer numbers to support its case.
This was the case with one of our member start-ups at EO Cares Cohort 2017-18, a programme run by Entrepreneurs’ Organisation (a global peer-to-peer network of like-minded entrepreneurs) Bangalore chapter. The healthcare aggregator service provider was quick to draw our attention with its easy-to-use wellness platform. It wasn’t long before a revenue opportunity came by, as we picked them to be healthcare service facilitators for our organisation. Down the line, they even went ahead to raise capital of $3.1 million from international investors.
Customer-funded growth can also make way for a great exit. A brand that shows traction with a promising number of customer who find value in it, speaks for itself and sells itself. A customer-funded growth path is naturally followed by impressive revenue figures, meaning — if all goes well — it’s only a matter of time before the business catches its big break as it captures market share and draws attention, and the opportune moment comes by when one of the big players sweeps in and makes an acquisition.
A business’s credibility is marked by its ROI and customer base figures, and not the capital it has raised. The inflection point for a business is when the customer base begins to grow and it shows potential to sustain growth over a long period.
Find the right mentors
Many start-ups sign up for paid accelerators which, no doubt, fuel growth. But entrepreneurs also need seasoned professionals or mentors from the same niche who have been there and done that.
Through mentorship, entrepreneurs avoid having to reinvent the wheel; rather, they can learn from the lessons their mentors picked up during their journey, while not repeating their mistakes. This also explains why start-ups that are mentored go on for longer than those that are not.
Statistics show a majority of businesses that are mentored make it past the five-year mark. Many of our cohort’s budding entrepreneurs consult seasoned members of EO for mentoring, deliberating on pivotal decisions and business lessons that cannot be found elsewhere.
Then again, the right mentorship is just as crucial. A mentor who offers an umbrella tried-and-tested formula is never the answer to a start-up’s problems. Here , entrepreneurs should not make the mistake of finding someone who hands them advice on a platter. They should choose someone who understands their particular business problem, challenges their strategies and guides their business decisions while staying true to the vision.
Tap into contact capital
Whether you’re an early-stage start-up that’s looking to find the right product-market fit, or a start-up that’s found a firm footing and is looking to scale up, nothing is as valuable as contact capital. Most start-ups invest their time and money on marketing via on-ground promotional events, OOH (out of home) or outdoor advertising, and social media, which is great. But what they don’t leverage enough is the value of contacts, which, when done right, can translate into cash flow.
All it takes is spending time connecting with other entrepreneurs — seasoned and new — in the start-up ecosystem. For instance, one of our cohort start-ups, which offers a corporate travel expense management platform to companies, has sparked interest in our community. We are considering adopting it in R&R-related activities within our organisation to help reduce business travel costs. It’s about whom you know, and who can help you get your business where you want it to be.
Hobnobbing with C-suite occupants in the entrepreneurial ecosystem can open up new doors for your business, whether by generating new opportunities or building knowledge partnerships. Being in these networks is a great way to garner brand visibility and find fellow-businesses that synergise with your start-up.
Entrepreneurs like to scratch each other’s backs; you just need to find the right circle where you can learn, network, mentor or get mentored, and grow.
(An entrepreneur and investor, the writer is Chair, EO CARES, and is a board member of EO Bangalore, a community of entrepreneurs dedicated to giving back to the entrepreneurial ecosystem.)