Why settle for less?

Posted on | May 6, 2010

That’s sort of a cryptic start, so I’ll give some background.

My company works with new-start, high-growth, businesses. These are businesses that have a great potential for growth (hence the term high-growth…duh) but normally need significant money to get things started. They are usually product-based businesses (physical or software) that have a mass-market appeal.

The problem with all of this is simple.

Money.

I know it’s a bit of a cliché, but it really does take money to make money. That or a tremendous amount of luck. Businesses that want to go after a large market need to prepare themselves in the right way. They need to secure their IP, identify their markets (and the strategy to reach them) and create the opportunity to successfully launch.

Money is a tough part of this equation. From personal experience I’ve seen some projects piss away a lot of money on needless expenses, poor decisions and crappy teams. I’ve seen companies burn through hundreds of thousands of pounds. That’s one problem in this industry – making sure that ‘money raised’ is ‘money well spent’.

The other side of the coin seems to be a really British sort of problem – settling for too  little. I’ve seen companies that have a good product and a willing market fall down for the simple reason of not asking for enough money. It was almost like they are so happy to be getting money at all, that they’ll happily settle for whatever they can.

The question we always ask is: ‘What does this money get you?” That’s an important question. What is the point of raising £80-100K when you really need £800K-£1m? What does that initial money get you? Are you going to be right back to the investors (with hat in hand) unable to proceed?

Now investors aren’t stupid, and the best ones will identify this pretty easily, but a number of smaller (angel) investors may not be clued up enough to really look at how much money it will take to get something to the market effectively.

It’s critical that the stages are identified early on. It may take £80-100K to establish a proper prototype and gather market demand/intelligence. It may take more. It may be that you can get to market effectively for £300K. It may take £2M+. None of these things are set in stone – they are all directly tied to the proposition and the market (and luck/opportunity).

My point is: these goalposts need to be identified. I’ve seen too many companies go for too little money, and they end up failing. Go for the right amount of money, and set your targets appropriately. It’s the only way to get a successful finish (and keep your investors happy).

-j

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