As we hear about start up companies in today’s world of tech, we know of so many companies raising funds and trying to eventually become net positive within ‘years.’ I don’t know about you, but that doesn’t sound too appealing to me. Once that money runs out, they raise more funds. It is a repeating cycle for so many companies. When there are no more funds to raise, debt becomes the next go to. It is so common for folks to go into so much debt to start a company and it can become dangerous. This is the way most people think you have to start a business in today’s world. I submit to you to think of a better way.
First, I want to address the investor aspect of this. When people are raising funds they are selling a portion of their company. The more money they raise, the less of the company they own. Eventually, the owner could end up loosing controlling interest of the company. This means that the other owners could kick the current owner out of the company. Usually they can’t take their equity away, but they can take them out of a position of control and change the company all around. This isn’t a fun experience for business owners. Debt is another big issue for companies. Business owners usually take out debt that they are personally responsible for when starting out. This is a super stressful thing for business owners to go through.
There is a term that is used in small businesses called bootstrapping. This is where you put up some kind of money to start a business, then use the profits to run the company and grow slowly. This is an old school approach before there were angel investors or big banks for loans. This is the way I recommend any small business owner to try to grow and operate. Owning a business is like maintaining a household. The more debt that is accumulated, the more day-to-day stress will be seen. It is just overall a bad situation. Some people will try to rebuttal with the company’s growth rate being higher than the interest rate of borrowing money, but that doesn’t take into the rate of risk and environmental factors. I may dive into this topic a little more at a later time, but for now, I hope this has been somewhat helpful.
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