This is a guest post by Matt Wensing, a good friend and someone I admire. Matt is the CEO of StormPulse, an incredible service that helps customers plan better against weather risks and protect their assets, employees and maintain business continuity. I am happy to start this guest writer series with a post by Matt (twitter: @mattwensing). Have you written yours yet? As an aside, you can see Matt’s stand on value creation and pricing in GigaOm.
As an entrepreneur, I’m used to working under constraints. The best definition of entrepreneurship I’ve ever heard is “the pursuit of opportunity without regard to resources currently controlled” (Howard Stevenson, HBS). I like how the usage of “without regard” leaves you wondering if the entrepreneur is noble and brave or mentally deranged.
My friend and I bootstrapped Stormpulse for 5 years (2007-2012), making ends meet with a smattering of friends and family money and customer payments. In late 2012, we finally succeeded at raising capital from professional investors. The bootstrapped years were a long and difficult road, but most would argue that those years made us stronger.
Did they? With confidence, I can say that we became accustomed to constraints. The good kind (the kind that force creative solutions), the bad kind (which limit you for ‘no good reason’), and the ugly (which force you to choose between cutting off your right arm or your left leg).
So here is the riddle: how can you identify a good constraint or a bad constraint? And is that the purpose of fundraising, to remove constraints?
Removing constraints for the sake of removing them is a mistake. Some constraints are good because they reflect limitations which your business will certainly encounter eventually. Shielding yourself from those constraints by raising money could also prevent you from taking on the challenge of overcoming those constraints in a more profitable and innovative way.
On the other hand, some problems fit the old adages such as “the cost of doing business” or “you gotta have money to make money.” Sometimes you need to place a bet, but you can’t afford the table stakes. This prevents you from being able to validate aspects of your business model.
And therein lies my answer—for now. Constraints are good when they embody a limitation that must be overcome for your business to scale. “Buying success” (removing the constraint through fundraising) will ease the short-term but may introduce a crippling flaw that will limit you later.
Constraints are bad (some also call them “artificial”) when they originate from a lack of resources that doesn’t reflect the market’s challenges. You simply don’t have money because you are a poor entrepreneur with only a vision. Wrong time, wrong place, no believers. You must, through no fault of your own, start from zero, comparative to certain peers.
That is a constraint in the psychologically-hardest sense, because it is very unfair and uncaring. It will only be considered good in hindsight if it’s overcome. If it isn’t, you will die unnoticed, and it is likely that no one will even care to tell your tale.
Can you handle it?