I started my company 5 years ago, with nothing more than some good ideas about technology services for the music industry, and a lot of enthusiasm. My then partner and I worked day jobs while working on the new company project in the evenings and at weekends. A year later, we had gained a few clients and enough income to pay ourselves a minimum wage and concentrate on the new company full-time. The company has grown steadily since then. We now have 7 full time employees and we have enough spare income to think about how to further expand the business. The company has never incurred any significant debt and income has increased steady, but not really exponentially. In many ways it is the opposite model to a VC-funded tech start-up.
There are quite a few positive aspects to self-funding. We are in a position that as our client-base grows, we can offer better and better services at better prices. This is in contrast to a lot of freemium models where a free service is gradually made worse and worse to encourage people to go for the paid service. Another thing is that I don’t have to make business decisions to please any investors. An example of this is that we don’t hold any patents. I don’t agree with software patents and despite devising several innovative solutions, I don’t feel the need to stop other companies from copying these ideas (something that has happened on a few occasions). While this might not make the best business sense, and my guess is this would also be quite unattractive to an investor, it’s something I feel strongly about, and I’m glad to be in control of such decisions. Being completely independent brings other benefits too, for example being extremely agile in decision making; we are able to change tact and adapt to changing market conditions very quickly. Overall, I’m very proud of what we have achieved as a self-funded company, and also very happy that everyone that works here loves their job.
The downside to this model is that we are often slowed down by a lack of resources. As a small company, people end up doing more than one job and focusing on one thing can often lead to another thing being neglected. Business decisions need to be made with cashflow in mind and so are perhaps less bold than a company that starts off with millions in the bank. We’re working in a market that is full of exciting opportunities (and we’ve never been short on new ideas to exploit them), but again, with limited resources, I have to be very careful about deciding which of these ideas are worth exploring and how much time we can dedicate to them. We didn’t start off with the business knowledge, contacts, and expertise of an experienced hands-on investor, and so, we have had to work many business systems and strategies out from scratch. Some of these, for example our marketing strategy, are still quite under-developed after 5 years of trading. All aspects of the company have improved over time but it is a gradual process.
I’ve mostly been confident since starting the company that self-funding was the way to go. In fact, when we started, it was probably our only option. Things have changed now though and I was recently told that my company could be an exciting prospect to the right investor (which is what got me thinking about all of this in the first place). What I do not know, nor have any way to quantify, is whether we would be in a better position with the funds and expertise of an investor. At this stage of the company, should I be looking to give away equity in return for a boost in financial and managerial resources, or should I forget that as an option, and carry on going it alone?
There is obviously no single right answer to a question like this but I’m very interested to hear if anyone has any thoughts on the subject. Thanks.