Cash the VC check, but spend it wisely and act like the startup you are.
Successful startups are often the most innovative, efficient, and scrappy companies around. They have to be. What makes leading a startup so special is that you're making magic happen, most likely on the cheap. And when you have no money, you have no choice but to make the smartest decisions with the limited resources at your disposal.
All of that can change when you cash your first venture capital check and find yourself ripe with capital. It's tempting to stop behaving like a lean startup and to reach into those deep pockets too soon, and too often.
Here's how to avoid that temptation.
Think Lean, Not Cheap
Cheapness isn't a smart tactic, nor is it wise to get sloppy and lose your edge with a lot of money floating around. That edge is what makes a startup, well, a startup. Don't pinch pennies unnecessarily, but don't allocate capital like you're a big company with an endless bankroll, either.
Money allows you to experiment and survive some mistakes, but it can also make you complacent or reckless. Allocating capital like a large company or in the wrong places will get you in trouble quickly. Stay scrappy, invest wisely, and don't lose the startup edge.
As a startup, the goal is to generate the highest return on investment because you don't have much to invest from the get-go. But once you are VC-backed, it's easy to lose focus. The solution to nearly every problem will seem to be adding more people, whether they're engineers to build the product, salespeople to sell it, or marketers to market it. It's important to make your customers successful, but investing in service doesn't always mean adding staff.
You can often generate higher ROI without spending money on increased staffing by creating user experiences that are intuitive and communities that enable users to support one another. I've learned first-hand the power of communities since founding dotloop four years ago.
As I've written previously, it takes a village to compete in the modern people economy, and we've built and nurtured a community of users who are always willing to answer questions and to swap notes with new and prospective customers, whether on the phone or on social media. Our community is a big reason for our success, especially during high-growth times when we simply couldn't hire (or train) hands-on customer service staff quickly enough.
Stay True to Your Roots
Be prepared to overcome resistance by staying true to your roots. One example is the story of Square versus VeriFone. Both companies offer mobile payment services. VeriFone essentially owned the mobile payment space for several years until Square came along and disrupted it. Square was innovative, efficient and scrappy in the beginning--and it still is. But with disruption comes resistance.
VeriFone responded to Square's disruption by raising the specter of Square's security vulnerabilities, writing open letters to the industry and eventually, yet unsuccessfully, trying to mimic its scrappy startup's concept. Square stayed true to its roots and prevailed, attracting investments from behemoths such as Visa and Starbucks.
The most successful startups don't lose their edge. That means they're efficient, focused, and spend every penny like it's their last--no matter the bank account balance.
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