Founders and entrepreneurs have to have a determination and resilience that often distinguishes them from those that are paid employees. It is not only that they have to find a gap in the market that they feel they can exploit, but they also have to have the confidence to back themselves to do that.
Getting funding to scale a business in 2023 is certainly more of a challenge than it has been in more recent years. This does not mean that it is not possible.
When considering raising equity finance, most early-stage businesses would often have to turn to angel investors or crowdfunding as was explained in last week’s article.
Having decided to scale your business and having concluded that the only way to make that happen in a meaningful way is to raise equity funding, there are then some very obvious next questions. This would include how much exactly do you need to raise and at what valuation, and where is the best place to raise the investment?
Pitch decks and business plans are a very common area for discussion amongst founders and early-stage business owners, especially if those businesses are seeking to raise external funding in any way. And this is as it should be, as these two documents are essential foundation stones for both understanding and running your business, and for raising finance.
Having made the decision to raise equity funding, and assuming that you know how much you are looking to raise, you must then decide the best place to raise that funding. This will depend on the stage of your business, the amount you are looking to raise, the type of business, and various other factors. This will be explored in more detail in future articles.
Funding for your business can, in theory, come from many different places. It can be self-funded from your own resources, otherwise known as bootstrapping, or you can ask friends, family, and others that know you, to assist.
Ask any early-stage business owner and they will tell you that getting funding to scale can be tough. Very tough. All will tell you that it takes much more time and effort and takes much longer to complete than they had expected. And all will tell you that raising finance is a massive distraction from actually running and growing the business.
Many hundreds of thousands of new businesses are set up each year in the UK. Indeed, according to Companies House, just over 200,000 new businesses were established in the first three months of 2023. For some, the founders will be content with a lifestyle business or will not wish to scale in any meaningful way. But the majority of businesses will need to raise some form of funding and for many this will be during the early-stage of the business when it is looking to scale.
When starting a new business, founders tend to fit into one of two categories. There are founders whose plan it is to scale their new business as aggressively as possible and to exit for the maximum value in five to seven years’ time
If you want to scale your early-stage business, and to grow it quickly, then it is quite possible that you will need to raise investment by selling part of your business to new investors. This is done by the business issuing new shares which has the impact of leaving the original shareholders owning the same number of shares that they did, but a smaller percentage of the total.
It has been said that ‘when the going gets tough, the tough get going’. But in reality, when a recession is looming and the business environment gets even tougher than normal, many more businesses, especially early-stage businesses, will fail.
Most entrepreneurs, and indeed the early-stage businesses themselves, share many of the same challenges and experiences along their journey. This is basically true irrespective of the industry in which they operate or the product or service that they deliver.
Working with the right partners can make the difference between success and failure in almost any scenario, but this is even more true when running an early-stage business. As a founder, it is simply not possible to know everything that needs to be done and the best way to do it.
When establishing a startup, or later on during the whole scale up journey, there is one general concept that holds good, and that is that you should try to under promise and over deliver. When producing a Pitch Deck or Business Plan don’t just focus on the best case scenario and don’t always just go for the highest valuation as there can be many downsides in doing this; raised expectations is only one of them.
One of the most difficult things to being a founder or running an early-stage business is the lack of human resources and the sheer amount and diversity of work that needs to be done. This can so often lead to founders getting caught in a cycle of fighting fires and finding themselves not able to have a planned approach, nor to being able to look at the overall picture of what needs to be done and when.
These are tough times for many businesses. Rapid inflation and so rising input costs. Rising interest rates leading to increased financial costs. Squeezed consumers buying less and making it difficult to pass on increased costs by increasing prices. Add to this, recession, and global supply chain issues, and for many it is the perfect storm conspiring to undermine business.
To be a successful entrepreneur means that you have to run a successful business. That in turn requires your business to sell products or services that customers want to buy and at a price that they are prepared to pay. In addition, the profit margins that you make need to be sufficient to support a growing business.
Welcome to a new series of articles for Startups Magazine. In this series we will look at some of the more common challenges that are faced by early-stage businesses and some of the top tips designed to overcome these challenges or, at the very least, to mitigate their worst effects.
So far in this ‘Back to Basics’ series we have looked at nine fundamental areas that entrepreneurs and would-be founders either consider or should be considering, both before and during their startup journey. These have covered: Should I Find a Co-founder?; Working with Advisors; To Scale or Not to Scale?; Pitch Decks and Business Plans; Think Green!; Raising Finance; Basic Truths; Cash Flow is Everything; and Second Thoughts.
