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It would be helpful to know a bit more about your situation; if I were on your board, here are the starting questions I would have to help you figure out what y

It would be helpful to know a bit more about your situation; if I were on your board, here are the starting questions I would have to help you figure out what you want to do. * Are you definitely dominant in your niche? If so, how long can you remain so while 'just' reinvesting profits? How big is the niche? * Presuming you are and can definitely stay the dominant one, are there target areas next to your niche you'd like to go after and can't because of capital? * Would additional capital let you add revenue through new features / adjacent product enhancement? If the answer to any of these is that more capital would be helpful, either to make more money, stabilize the business, or grow the value, then you need to figure out how you want to take that money on. Generally there are three ways businesses get additional capital: equity finance, debt finance and trade partners. My guess from your question and how you explain your business is that if you sit down and take a cold hard look at where your business is at, then you will conclude you have some real risks, and money will help mitigate those risks. This is a tough mental game to play as a startup founder, you have to stop thinking product vision for a little bit, and switch it around, and be like "I'm X product manager at Y company / just VC funded / my enemy from junior high who is rich, and I want to fuck us up and drive us out of business. How do I do that?" Once the business is real, and has real ongoing value, then part of your job is mitigating those risks. Usually the right way to do that is to grow the business into a dominant market position so that you're not vulnerable, and that's (part) of the thinking behind taking money -- so that you can grow rapidly, and get through that risk period where anyone might notice you've got something good here and come take it away from you. So, how do you figure out debt/equity/trade? Short answer is that trade is almost always preferable if you can get it -- details depend on your product and industry. Between debt and equity, it varies, all the time, and will vary at the stage your company is at. In brief, though, at its best, you'll bring on real partners with VC money, people who will guide you, kick your ass, help you, and end up with a significant portion of your company in exchange. (At it's worst, it's much, much worse than that). If you bring on strategic investment from the in-house VC teams at your customers, that has a different flavor. If you get big enough to have an interesting stable return rate for Private Equity, that's again a different flavor, with different expectations about your team -- it doesn't sound like you're their yet, BTW. :) Debt comes in two flavors, recourse and non-recourse, essentially are you going to give them your house if you fuck up -- and they're priced differently, and it's harder to acquire non-recourse financing. Enjoy where you're at! It's nice to have something working. And, finally, remember you cannot undo an equity round - they lost longer than many marriages - so tread carefully.

alexpetralia 8y ago
The idea of thinking that _too slow a rate of growth_ is a business risk is somewhat confounding to me. Isn't every business at risk, by this definition? This seems like a good way for investors to "scare the pants off" founders by reminding of them of an existential threat, and therefore _only money can solve it_. Not only that - only _a lot of money_ can solve. Convenient! Couldn't the founder simply re-allocate retained earnings toward mitigating risk? Then you are protecting from the downside at the expense of growth. One could also argue that this is money deployed much more wisely - ie. in a capital efficient way - over known risks than speculative "target niches" or feature creep. At this point, your only argument is that you _may_ (but not necessarily) be growing less quickly. And to that, well you can use that argument literally against any business. There is a "threat of a potential well-funded competitor." This doesn't seem very tenable to me.
- vessenes 8y ago
  I hear you. In my twenties I was resistant to this idea also, that growth was the thing. I was mentored for a while by the founder of JD Edwards, and he drilled this idea into me -- if you're not growing, you're dead. I can only speak to my own experience -- I've started roughly 20 companies, and generated hundreds of millions of dollars of earnings and value, and I've lost quite a lot of money and made some terrible decisions along the way as well. I now mostly sit in the investor seat, but I have worn the founder hat many, many times, and I think to a first approximation he was precisely right. I'll note our own pg says he doesn't really need to understand almost anything about a company, he just needs to eyeball their growth rate to know everything he needs to about a company. And, if you read through the public YC training materials, they hammer this point home, very, very hard for their founders. Weekly compounding growth. To respond to some of your other questions, I don't really believe in retaining earnings for a company this size -- returns should be deployed somehow, and this deployment should be planned for -- they have certainly not found the end of the list of things they could do with money inside the company that beats some notional outside-the-company returns yet. I don't know how you would propose to mitigate risk more effectively than growing aggressively, but I would be interested in your perspective -- rapid growth brings its own risks, yes. But it does a few things - it provides an incontrovertible early feedback loop on your continued ability to have product market fit - and it increases your power as you grow your network of stakeholders - and it increases your economic power in that network as you have greater revenue. In general I'd rather be sitting in the seat of being the largest most influential company in a niche, and being able to acquire or squash competitors (or expand) than finding out I'm up against a deep pocketed competitor with a vastly larger customer portfolio, and if you're starting out organically from scratch the only way to get to that large/influential spot is to put the gas on very fast while you target a small niche, unless you have some extraordinarily special sauce that isn't replicable. My experience is that generally people are better at thinking about risks from doing things -- risks from growing for instance, risks from taking on capital -- they aren't so good at thinking about risks from inaction -- from doing the same thing they do now. Finally, I'd say most businesses are vulnerable to well funded competitors; usually though the business they're in isn't juicy enough to really get say the Goldman special situations group interested. You'd better believe if you have juicy at-scale real world returns available to your business then very intelligent very wealthy people are already thinking about how to carve up / acquire those returns.

alexpetralia 8y ago

The idea of thinking that _too slow a rate of growth_ is a business risk is somewhat confounding to me. Isn't every business at risk, by this definition? This seems like a good way for investors to "scare the pants off" founders by reminding of them of an existential threat, and therefore _only money can solve it_. Not only that - only _a lot of money_ can solve. Convenient! Couldn't the founder simply re-allocate retained earnings toward mitigating risk? Then you are protecting from the downside at the expense of growth. One could also argue that this is money deployed much more wisely - ie. in a capital efficient way - over known risks than speculative "target niches" or feature creep. At this point, your only argument is that you _may_ (but not necessarily) be growing less quickly. And to that, well you can use that argument literally against any business. There is a "threat of a potential well-funded competitor." This doesn't seem very tenable to me.

vessenes 8y ago
I hear you. In my twenties I was resistant to this idea also, that growth was the thing. I was mentored for a while by the founder of JD Edwards, and he drilled this idea into me -- if you're not growing, you're dead. I can only speak to my own experience -- I've started roughly 20 companies, and generated hundreds of millions of dollars of earnings and value, and I've lost quite a lot of money and made some terrible decisions along the way as well. I now mostly sit in the investor seat, but I have worn the founder hat many, many times, and I think to a first approximation he was precisely right. I'll note our own pg says he doesn't really need to understand almost anything about a company, he just needs to eyeball their growth rate to know everything he needs to about a company. And, if you read through the public YC training materials, they hammer this point home, very, very hard for their founders. Weekly compounding growth. To respond to some of your other questions, I don't really believe in retaining earnings for a company this size -- returns should be deployed somehow, and this deployment should be planned for -- they have certainly not found the end of the list of things they could do with money inside the company that beats some notional outside-the-company returns yet. I don't know how you would propose to mitigate risk more effectively than growing aggressively, but I would be interested in your perspective -- rapid growth brings its own risks, yes. But it does a few things - it provides an incontrovertible early feedback loop on your continued ability to have product market fit - and it increases your power as you grow your network of stakeholders - and it increases your economic power in that network as you have greater revenue. In general I'd rather be sitting in the seat of being the largest most influential company in a niche, and being able to acquire or squash competitors (or expand) than finding out I'm up against a deep pocketed competitor with a vastly larger customer portfolio, and if you're starting out organically from scratch the only way to get to that large/influential spot is to put the gas on very fast while you target a small niche, unless you have some extraordinarily special sauce that isn't replicable. My experience is that generally people are better at thinking about risks from doing things -- risks from growing for instance, risks from taking on capital -- they aren't so good at thinking about risks from inaction -- from doing the same thing they do now. Finally, I'd say most businesses are vulnerable to well funded competitors; usually though the business they're in isn't juicy enough to really get say the Goldman special situations group interested. You'd better believe if you have juicy at-scale real world returns available to your business then very intelligent very wealthy people are already thinking about how to carve up / acquire those returns.