“At Dr Wealth we have not raised a single dollar from venture capitalists or angel investors. We do not rely on government grants to survive. We are 100% supported by our readers and students who believe in what we do and how we do in an industry that is full of hype.”
Throughout the years, I have friends that run startups that struggle to make money from their core services/products. Some of them end up trying to game the grant system from the government. They also find themselves pivoting to one-off side projects and side ventures while not making the original products/services. They aren’t able to keep the company profitable or scalable.
You’re not actually building a business if:
- If you’re obsessed about raising funds
- Your company cash flow is reliant on grants from the government 🙁
Charlie Munger slighted that there’s “too much money” in venture capital and compared the current environment to the dot-com bubble in 2000. Call me old school, however, I’m more than sceptical about the valuation and capitalization of the venture capital and fundraising scene in general. There’s even an article on Forbes suggesting that 90% of Start-Ups fail.
Look, I’m not saying that all of the startups that are funded are going to fail. I’m saying that if you’re looking to start a business, you need to make sure your idea is viable, able to deliver value and generate paying customers.
Should You Rely on Government Grants and External Funding for Your Startups?
Investors expect Return of Investments (ROI) from their investments. They aren’t looking to give you free money. I actively invest in the stock market and as a retail investor, you can bet your last dollar that I’m expecting a return on investment for my money. They aren’t going invest in you just because you’re going to create the ‘next Uber of X’, it’s NEVER going to work. I know this first hand. I’ve pitched ‘business ideas’ to seasoned investors.
You can waste time and effort persuading investors, raising funds, looking for grants, pitching to angel investors/venture capitalists OR you can focus on the most important part of your business: your customers. The people that exchange cash for your products and services. Instead of worrying about fundraising, why not focus on getting paying customers and sales for your business?
So the answer is NO, you should NOT rely on grants or funding for your startups.
I once made the mistake of entering the dating coaching market through a singular marketing channel: Google. Through that sole marketing channel, it was unable to scale. I spent half a year planning out my content, redesigning my website, publishing content and wasted a lot of time and effort on areas that didn’t matter. I should have invested that time testing out other marketing channels to validate my business idea whether is actually something the market is willing to pay for.
Note: This site didn’t start as a business endeavour. it began as a personal blog of Alvin Chow, CEO of Dr Wealth. It was only after 6 years of writing he managed to build up a decent following of readers that he frequently received questions regarding to personal finance and investment advice. It was then he realized a market for investor’s education, and formed a company among likeminded partners to inspire and help Singaporeans to achive financial independence. The idea of investor’s education was validated way before we even had our first class.
I Started my First Business Off a Website from a 4 Room HDB Flat
If you’re wondering, I started off this business from the room of my parent’s 4 room HDB flat. I simply said to myself: 1) I’m passionate about emotional intelligence, psychology and social skills 2) I can package it and sell to my target audience. I then attended an SEO program, launched a website and a couple of months later, I got a trickle of leads from my website and acquired my first ever client: $700 for a 2-day full training coaching program.
No investors, no rent and no employees. Just skillsets. I didn’t know any investor, and I didn’t even know anything about funding or all that jargons that the tech start-up scene uses.
Angel Investors, Venture Capitalists Do They Have a Purpose?
So, Marcus, you’re saying you don’t need investors to start a business? No, I’m not saying that. Capital intensive businesses do exist. I’m saying that if you’re starting out, it’s better to start off with a low-risk project. You SHOULD also start off with a business that generates cash as soon as possible.
You need to take control of your own business trajectory through customer research and not rely on funding, fanciful investors and office space. There’s no need for inventory, no office or complicated business model. Hypothetically, the day will come where I need to raise funds. Who is going to stand out more? Someone who claims that he has a track record of paying clients, or someone who has… ‘ideas?’
In fact, I often use my portfolio, my track records as pitches to potential investors and businesspeople to say: look, I’ve started business projects before. They both generated revenue and were in the green. I am also able to explain to them the business processes: my process of customer research, marketing processes, sales workflows, etc.
What Shark Tank Can Teach You about Raising Capital
Here are some common themes I come across in networking sessions and from entrepreneurs talking about their business:
- Getting investors and raising capital seems to be startups top priority
- They aren’t really talking about the benefits of their products or the value they deliver
Some of these business owners even told me that they require a huge capital investment before getting paying clients.
Here’s my take:
It’s possible to bootstrap a capital intensive project by securing contracts upfront before purchasing inventory from CUSTOMERS.
- You get to validate your idea/ service from paying customers
- You reduce the risk for potential investors
Raising capital is fun. Getting paying clients is difficult. Oh, wait, developing a competitive product is even harder.
Let Shark Tank teaches you a little about raising capital:
‘You guys make people pay you for a proof of concept for two years’. – Mark Cuban
How to Validate Your Business Idea: Numbers That Matter (Not Your Facebook Likes)
If you’re looking to raise capital, you should be pitching your sales results. Every seasoned investor knows that free cash flow matters. These are the numbers that matter. Not the ‘dream’ or the ‘vision’. Facebook likes, press releases etc. are often vanity metrics. Businesses and startups fail because they built something that the market isn’t willing to pay for. The key here is to validate your products or services way ahead of time.
This is an entrepreneurial concept called: front loading.
- You do your customer research upfront
- You test out your business idea by trying to acquire your first three paying clients
- You can do this by pitching to clients way before you invest in any inventory or renting out an office
This is what I mean by frontloading your work. You’re doing your customer research and attempting to acquire paying clients before you put up any fixed costs. In the digital economy, you can even test your business idea out of a simple one-page website. You don’t need fanciful technology, investors, office, Dev teams or complicated business models to front-load your work.
Your core focus is to understand who your target market is:
- Clients that are able to pay for your services and products
- Clients that are willing to pay for your service and products
There’s no need to reinvent the wheel. Let’s take a look at the Japanese food market in Singapore. There’s an increase in the number of Japanese food brands in Singapore. It started off with Sakae Sushi dominating the market. Now, you have dozens of other brands competing. Is Sakae Sushi worst off when they started? Perhaps. However, are they still generating tons of cash? Yes. That was because there was already a market to begin with.
What about Dr Wealth? Likewise, we validated our ideas by hosting free workshops for our readers at the start. Sharing our investment methodology and what the students would expect at the end of the paid training program. We got our first paying customer from there and that was before we even had our products i.e. training program completed.
Your idea has to be validated. Instead of wasting months and months of raising funds, getting investors or innovating your product, why not pitch to potential customers, test if there’s a demand and even secure an upfront contract for your products or services?
Through the process of building my first business, I built up a couple of entrepreneurial skillsets. I read into psychology, SEO and persuasive copywriting. I thought ‘why don’t I start consulting as a digital marketing consultant?’ I replicated similar business models and started my freelance consulting business.
When was a freelancing as a digital marketing consultant and I went around telling people I help businesses get found on Google, people looked at me weirdly. Nothing against IT geeks, however, sometimes, it just isn’t cool at all. However, you know what else is better than being cool? It’s to get paid. It’s getting paid consistently.