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EPA/Divyakant Solanki
Make rupees or raise dollars?
BOOTSTRAP

Startup lesson: Raising money just because your competitor is will kill your business

You have an idea, and you start up. Then you quit your job and pursue it full-time. What follows next is the quintessential dilemma of a startup founder—should I raise money now?

Unless you have a machine that mints money, you will find yourself wondering about it in your startup journey. In mine, I reached stages where I had questions in my mind to which raising money was one of the answers.

You have an idea and it needs investment

You have an idea which you need to transform into a functional product. You will need resources for that. Times have changed, and nowadays, investors rarely prefer to invest in startups in the idea stage.

Having a fabulous idea is not enough; it’s the successful implementation that eggs investors on to back you. Raising money in the idea stage is not entirely impossible, though. You might still stand a chance if you have graduated from an Ivy league college, have a great work experience, or have built a successful startup previously.

If you have a prototype ready, you can always pitch to the investors. Raising money from your friends and family is also an option, but I’m strongly against it.

My story: I did not have to hire someone to develop the first version of our product, or outsource it, as I was a software developer myself. Moreover, my savings came to my aid as I was working part-time to sustain myself. So, I coded the app and launched it in February 2010 while I was still working.

Make money or raise money?

Pull all your PR strings at the time of your product launch as this is the only thing that will fetch you your first batch of users.

If your product exceeds users’ expectations, you will not need to spend money on marketing it. You can take a cue from WhatsApp, Slack or even my own product, Crowdfire. However, you will definitely require money to incur operational and other expenses to keep the product up and running. That’s when you have to either find ways to make or raise money.

After six months of starting up, Crowdfire reached a point where the server charges had eaten up almost all my savings, and we had to make money to survive. I realised there were only two ways to do it—funding or monetising the product. Back then, I had no connections with the investor community. Besides, raising money is a full-time task, and I was already juggling my day job and my startup.

With no alternatives in sight, I decided to monetise my product.

Now, the thing is, if yours is a consumer product, making money can be difficult in the beginning because charging users before they even use it may not be the best idea. However, if your target audience is not consumers, that is, if you have a business-to-business (B2B) model that you want to make viable, you should monetise it. We did, and took Crowdfire the freemium way.

Do you have the money to put together an A-Team?

People are using your product, but you would want to grow it further. There will again come a point when you (and your teammates or co-founder) will realise that you want more—to level up and build a company. You need a team for that. Finding people of your tribe, people who are willing to take the risk of an early-stage startup is tougher than you can ever imagine.

In 2012, I quit my job and went full-time with Crowdfire because it was making me more money than my job was. I made my co-founder quit his job too, and together, the two of us decided that it was time to build a company.

We had 600,000 users back then, and only one thing on mind: to build the best marketing product.

We met investors and even got a term sheet. However, there was a catch. The investors offered us $500,000 and set a target—to reach five million users in 24 months. With the amount offered, the target seemed almost unachievable. After a lot of discussions, we decided that if we were to go down, we might as well do so without wasting investors’ money.

To us, it was not a risk worth the rewards. And 15 months later, as a bootstrapped startup, we had seven million users and over a million dollars in revenue.

If not money, we did take a big lesson away from our tryst with investors: the first step to success is to aim high.

It’s time to go all out and capture the market

For some of you, raising money may have been the answer in the third stage itself. Looking back, we realised we didn’t really need it back then. Hence, going for funding just for the heck of it would have been disastrous.

After a point, even great traction doesn’t seem good enough. Fast isn’t fast enough. You want greater traction and faster progress. Even though we were making enough money to sustain ourselves, the revenue wasn’t enough to fuel growth. It was evident that external funding was needed to fuel our product growth and to help us increase our market share.

In February 2015, we raised a Series A funding of $2.5 million from Kalaari Capital. It’s been a year, and we’ve just released the beta version of Crowdfire 2.0—your marketing assistant on iOS (you can get early access here). And I’ve never felt prouder of my team.

Crowdfire 2.0 is going to help small businesses such as e-sellers, cafe owners, bloggers, authors, YouTubers, influencers, photographers, freelancers and startups market themselves by being their marketing assistant. These small businesses would not be at a disadvantage anymore for lack of a marketing team.

We’re just getting started. But, there’s one thing that I firmly believe in. Stay bootstrapped for as long as you can. In venture capitalist Paul Graham‘s words: Don’t raise money unless you want it and it wants you.

This post originally appeared on Medium.com. We welcome your comments at ideas.india@qz.com.