As an example, my second company, a design and development agency, never took any outside funding of any kind. In fact, it was profitable on day one — I charged a decent hourly rate for my services, some of which went to my salary and some of which stayed in the business. Over time, I used our profits to hire more people and turn it into a nice little business. This worked for us because the goal was never to become a huge company. We had competitors, of course, but often, we were the only serious bidders on a project. We weren’t in a race to create a defensible intellectual property that would dramatically alter the dynamics of a market or create a new one entirely (which you’re often doing in a startup).
Stay Sustainable
Here’s a handy gut-check for the “startup or small business” question: Imagine your company 10 years in the future, having grown entirely on its own profits. Is your company irrelevant? If so, it’s probably a startup. If not, it’s likely a small business. Small businesses often do need capital to get their footing. You may need to hire some help before you have the profits necessary to do so, or make payroll before you’ve been paid on a project. You may have to purchase inventory, equipment or commit to retail space for some period of time. So how might you do that? Here are some common ways:
Skip VC Funds
Note one important omission in this list: venture capital. As a rule, venture capital does not fund small businesses — and that’s OK. VCs need their companies to grow fast and achieve large exits. VC firms have their own investors (known as limited partners), who often demand 25 percent or more annual returns. That’s why most VCs only bet on companies that can grow quickly and become really big. The huge upside is that in most of these types of small business financing, you’re not giving up that “piece of the pie” that you would with VCs. Small businesses can lead to great lifestyles for their owners who can pay themselves as much as they want, work when they want to, and build something on their own terms. As a final note, not all businesses are created equal, but that doesn’t mean one type is “better” than the other. The market your business competes in, its potential for growth, and perhaps most importantly, your own goals with your business — will dictate the type of funding you should go after.
