Why funding is not a parameter for startup success

What is the first thing that comes to your mind when you think about startups: funding or customers?

A startup comes into the limelight after raising the first round of funding. Just talk to founders of a funded startup and they will tell you that funding just gave them extra leeway for proving their success. Success, however, is still far away.

A company can be successful only when its customers are happy. Your potential customers don't care about the amount of funding you raised; they only care about their problems and how your product can heal their pain points.

Marketing guru Seth Godin says:

"The purpose of a company is to serve its customers.

Its obligation is to not harm everyone else.

And its opportunity is to enrich the lives of its employees.

Somewhere along the way, people got the idea that maximising investor return was the point. It shouldn't be. That's not what democracies ought to seek in chartering corporations to participate in our society."

Funding will solve one issue: you will have more fuel to run your company for a little longer period. You will have some more time to find more customers and make them happy. Ultimately, you will have to improve your cash flow and start making profits.

Remember that funding is borrowed money and you have to return it to your investors (multiple times of what you have raised). Your investors expect more than market returns because they put money in your company at the riskiest time. You know that banks do not lend money to startups even at 20-25 percent interest rates.

If your company bank balance is going low and you failed to become profitable, then either you have to shut down your venture or raise another round of funding. If you raise another round of funding, then you will return the money of your previous investors, but now you will be obliged to pay a bigger cheque to your current investors.

If you failed to raise money and shut down your startup, then no VC will give you money for your next startup. No one is going to trust you again and it will be a rough journey for your next initiative. Once you've accepted funding, you will always be on the marathon of raising money until you become profitable.

What, then, do you need in order to become profitable? Lots of happy customers who are willing to pay for your solution.

So when and how can funding help you?

When you figure out how to find customers and make them happy. A big bag of money can help you extend what you are doing. You can hire a couple more developers to fix the bugs, a bigger sales team, bigger budget on marketing and ability to provide quick customer support.

You can do more with everything. But, beware; if you are already making mistakes, chasing wrong customers, hiring wrong team members, doing wrong marketing, then you may do more wrong with more money.

The money will not help you set the right direction; it will just propel you with more force in whatever direction you want to go.

Funding can help you go from 100 customers to 1,000, if you know where to pump investors' money. If you have not found your initial customers yet, or are still wondering how to make them happy with your solution, then funding is not going to solve your issues.

You probably need a mentor at this stage or a right mix of the team that can execute the plan.

Paul Graham of Y-combinator says -

Build the great products that solve people's problems, and the money will follow.