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Startup

Too Much Money Is Worse Than Too Little

Think for a moment that you did get started with a million dollar or more in funding right at the stage when your product is just on paper, at a concept level. What will be the first thing that you will do with that money?

Get a nice office space with a neat little cabin and thinking rooms for product ideation; work on a plan to scale big nationally or globally; recruit teams that will take care of product conceptualization, development, marketing, sales, customer service, etc; allocate money towards media channels for marketing and development of collaterals; hire a research company to help with customer research; and I’m sure there’re a whole lot more important things to spend on to get your business up and running.

These are just fluff and you do not need any of these on day one. Most of them would not be needed for a long time even after launching your product.

When you’ve got a whole lot of money to start playing around with before your product is even developed, entrepreneurs tend to make far more mistakes and end up creating a mediocre product. Take for instance, hiring a market research company. The real market research happens when your customers actually use your product (or a minimum viable one) and give you first hand feedback.

On the other hand, if you have very little money to begin with, you tend to focus on making far fewer mistakes. You’ve got very little room to play with and have to get your product working and accepted right at the beginning. You don’t have the leeway to create a whole lot of crappy product versions or prototypes, you’ve got to get it right with as few versions, possibly in the first two!

You think harder and tend more to innovate on how to sell and market your product; you create guerilla-marketing tactics.

In a nutshell, little money makes you innovate and thus create avenues that get you bigger results for your efforts.

That’s the route to creating successful products so do not fret if you do not have money to start your business. That’s in fact the best way to start a venture so go ahead and figure out how best can you use your available resources to launch your product.

Google, Microsoft, Virgin, Apple, Facebook, and just about every other successful venture did not start with a million dollars in funding. Here’s your cue!

Here’s a link to my latest article that was published in Forbes: 4 Steps To Master The ‘Art’ of Sales.

photo credit: Unhindered by Talent via photopin cc

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5 Comments

  1. I totally agree with your point. Too little money leads to too many innovations! But little money pushes startups to service industry, Manufacturing sector is in ICU and needs critical care with R&D and innovation! I wish there was some assistance available for jumping into Manufacturing sector! Nevertheless, one can always go first for service industry and then go to mfg sector but seldom it happens!

  2. Rahul, in my view, having enough/more funding is not the problem. Not using that money wisely certainly is.

    Being underfunded is one of the reasons for quite a few startups to fail. Being underfunded (or living a hand to mouth existence as a company) does not allow the company to experiment (even when necessary and well thought out), it limits their ability to recruit the right talent (and there is usually a tendency to cut down on people resources assuming that we will be able to manage somehow), cuts down their ability to invest in marketing, etc. 

    There are examples of companies like nauki.com who raised a good sum, and used it wisely.

    But I do accept your point, and your advice to entrepreneurs – if you get a lot of money, do not waste it on stuff that will not build the foundation of the company. Invest in areas that are going to contribute to your success. 

  3. Hi Pankaj,

    That’s exactly the point I’m trying to make. People don’t use money wisely when they have too much of it in the beginning. This article is meant for people who are starting out.

    Now, I do not agree that you need money for marketing like you mentioned. If a startup had $10,000 on day one of their product launch to spend on marketing, what would they do? They’d buy all the media they can, Adwords, Banner Ads, Facebook Ads, go national, etc. And that’s a stupid strategy. Sure they may get a few users, but they won’t be customers. The cost of acquisition is just too high and doesn’t make sense for a startup.

    On the other hand, if you have little money, you’d think about the REAL albeit effective ways of marketing your product or service. Take for instance Buffer App. They went from ZERO to 100,000 customers with guest posting on blogs alone. Take for example Dropbox. Their viral growth was attributed to the incentive they offered to each customer to help spread the sign-ups. Nothing to do with more money for marketing.

    For most part, you do not need money to begin with. The most important aspect to starting up is building a prototype that can get you feedback from REAL customers in the initial stages. For that, you do not need to build a team. You can put together the initial team even without funding. Most successful entrepreneurs have. 

    Funding/money isn’t the end all and be all of starting a startup. The less you have, the more it makes you think on innovative ways of acquiring a customer, marketing the product, building a team, etc. 

    Of course, when you reach a certain point in time in the evolution of your startup, you may need funding to add to growth, not denying that!

  4. I agree. 

  5. Hi sir, Thanks for this very helpful post. I’m new to this community and so was going in backward direction of your posts. How would you rate this strategy: Suppose that my customer likes my MVP and considers that to an extent it does solve some of his problems.

    1. I give my customer MVP free and start to take subscription money after 2 months. This may make many other similar people to try an app and if they find it useful, they can start subscription! 

    2. what if for 2 months each week i give them new surprises, making my product more useful to them each single time. Before i launch my product, i keep my 2 months of surprises in pipeline and give it to them bit by bit.

    Would love to know your point of view on this!
    Thanks.

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