No Angel - Why you don't need start-up investment

Many new businesses are keen to raise funds but is investment really what you need?

To kick off our new blog we asked Doug Richard for his advice on raising money from Angels. The advice might be surprising – don’t! Doug told us, almost universally, outside investment is the last thing a new business needs to succeed.

Doug writes:

“Businesses are machines for making money. They become profitable by producing products and services that meet customer needs.  New entrepreneurs often look for outside investment before they have a business model that works. They turn to outside funders before they have isolated the value they will provide customers in order to make a profit. 

Pouring money into a business at this stage harms the business greatly.  It makes business owners design their business to meet the needs of external funders who have no idea what customers want or how to build a business from the ground up.  It makes businesses less likely to establish mutually rewarding strategic partnerships with others in their industry because they don’t have to ‘reach out’ right at the outset.  Finally, it typically creates businesses with feature-heavy, expensive, slow-selling products because there is no pressure to create a lean, elegant, cost effective solution carefully tailored to meet customer needs.

For new entrepreneurs it may seem entirely unbelievable that a solid, profitable business can be launched on little more than a good idea, a few weeks work and a lot of phone calls and meetings with prospective customers (or those who can refer customers).  It is certainly not what many experts tell you. 

But the truth is, most successful businesses start that way. 

When you can identify exactly what your customers want and can show them exactly how you will deliver it, your customers will be the first to “invest” in your business. They will invest in you even before you have a product because they want what you can deliver and they believe you can give it to  them.  

In cases where you really do need start-up resources, ranging from server space to lab time or production resources, enough phone calls and meetings with your personal and professional network will deliver you the customers and strategic partners that can give you what you need. 

Leveraging those free and cheap resources not only saves you money, it markets your business very effectively. It embeds you and your business into the market you will serve.

You will know it is time to seek for outside resource when you have more orders than you can fill and your business is already turning a profit.”

If you really do need Angel investment, look out for part 2 next week where Doug will highlight how to get the best deal with a potential investor.  (part 2 now here)

About Doug Richard: A successful entrepreneur with 20 years’ experience in the development and leadership of technology and software ventures, Doug featured in the first two TV series of Dragon’s Den. He is the Founder and Vice-Chairman of the Cambridge Angels and Chairman of the Conservative Party Small Business Task Force. Doug’s current Venture is School for Startups