ATLANTA, GA / ACCESSWIRE / September 4, 2020 / Starting a business in this day and age can be a trying and frustrating process for many. Many founders can be overly focused on raising funding for their businesses by taking on multiple rounds of outside financing. However, with each round of funding (Series A, Series B, and so on) comes a requirement that the founder dilute their shares in the business, sometimes leaving the founder with as little as 5% of the company that they started. In the end, this can serve to disincentivize the founder from driving the company they built with the original vision they had in mind.
To avoid a repeat of this all-too-familiar conundrum, creating a capital-efficient business model should be a guiding principle at the inception of every company.
"Trying to navigate the beginnings of a business can be difficult for most in terms of capital-related issues," says Deepak Agarwal, founder, and c-suite executive. "Always acting like a start-up is one way of staying capital-efficient."
Finding the perfect balance between too much capital and not enough can be tricky. Not having enough capital can drive founders to seek outside funding, which can affect their ability to operate the business in a way that is consistent with their original vision.
However, capital can also become a crutch that inhibits growth. Companies occasionally mistake systemic problems with a need for more capital, using capital to provide a temporary fix for a symptom instead of addressing the core problem their business is facing. Once this happens, it becomes difficult for companies to backtrack and figure out how to move forward without using capital as a solution to every internal problem that arises.
"When this happens, businesses risk destroying the core unit of economics and fundamentals of the business model," says Dee. "Maintaining a strong and guiding vision for your business is an important aspect of founding a company, and part of that includes learning how to deal with issues that are bound to arise without putting a capital bandage over it."
Entrepreneurs often get carried away with the notion that revenue is all that matters and that profitability is not as important as other factors. However, when a business is built on this principle, that business is likely to become dependent on capital, leading the founder into the conundrum of needing to take on outside financing in exchange for a share dilution.
"Profitability is important, that is how you can become self-sustainable and control your own destiny," says Dee Agarwal. "Don't be carried away by lofty valuations of companies that are losing money with no fundamentals in place to spur a turnaround. Grow both the top line and bottom line, and that is when you can build a true unicorn."
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SOURCE: Scenic Figure
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