The Art of Fundraising: What You Need to Know About Business Funding

Back in the day, if your business lacks funding and an infusion of big capital, you will never be able to compete with established competitors. You will probably go under in just a few months, all your investment sunk in a product that your market doesn’t want or doesn’t know about.

In fact, studies have shown that 80 percent of startup companies fail in their first two years, and one factor is due to lack of funding. You need money for marketing, customer service, personnel and even for continuing product development. Your business might be properly scaled but if you are to stay competitive, you would need a lot of cash to expand your market share.

Nowadays, entrepreneurs already have the capacity to achieve more with less. You no longer need a ton of capital just to stay competitive. There is a concept, for example, that encourages cheap and rapid experimentation which can drastically cut losses.

Known as the lean startup methodology, this way of thinking has reduced the many risks associated with starting a small business with limited funding. It uses concepts like building a “minimum viable product” and advocates producing products which customers like rather than developing products which are based on intuition that consumers will buy. 

With the lean startup methodology, you can develop products and test if they interest consumers before spending money producing a bunch them. If customers don’t like the product, you can either adjust the product to fix the problem, or pivot to a completely new product offering. In the end, you can reduce your losses by developing a product that consumers actually like.

Do You Even Need A Big Capital?

While it’s true that with the use of the lean startup methodology you won’t need to spend as much money on test driving products in your market, the question you should ask yourself first is, do you even need the money?

Why spend months and up to $20,000 in capital trying to develop a product that you’re not sure of, if you can gauge the market’s reception through other means without spending thousands of dollars?

How? Simple: Build your minimum viable product (MVP)
Whether your product requires a simple website, or a prototype, you can definitely develop an early-stage product that will have the sufficient features needed to satisfy early adopters. This initial product could have only one vital feature instead of a complete set of features designed based on assumptions of what the customer actually wants.

Unlike before when it also costs thousands of dollars to have a professional-looking website built (which defeats your purpose of saving money), nowadays, it will just take you a few minutes and some spare change to come up with a website that does what you intend it to do, thanks to recent technological advances.

Some easy website builders now use artificial intelligence to design and create websites easily, quickly, and so much more cheaply than hiring a professional web designer. Bookmark, for example, is an AI-powered website builder that lets you creates your own professional website in minutes, no coding skills necessary.
The Bookmark website builder creates a unique website customized specifically for your industry or product needs in less than 2 mins and simply walks a user through the process of editing content and images. Tools like Bookmark are built specifically for entrepreneurs in more than 600 industries looking to quickly launch and test their business as it simplifies the process of “being an entrepreneur”.

When Should You Raise the Money?

Once you see that your product has potential — customers want it and show that they’re willing to buy it — when do you actually need to raise the money?

It depends.

If the technology (i.e., the product) is complex, but has potential, then you should raise funds as early as possible. This will help the business deal with difficult times at the same time help with its growth.

However, in most cases, it is appropriate for businesses to raise funds when the idea has been proven to be successful and initial traction of revenue has begun.

For example, if you used the lean startup methodology to develop your product and found out that customers actually want to buy the product, you would definitely need funds to expand your market reach.

Also, your product may be tested only in one demographic area or one social media channel like Facebook. Or maybe only one feature of the product was tested, but getting more capital and raising more funds will allow you to scale your business.

In these instances, whether you want capital to increase sales, expand your business into a new location, hire more talented staff, or expand your product range, raising more funds for your business can help move it to the next level. As an entrepreneur, do what is needed to move the needle and grow to the next challenge of your business. 

How Should You Raise the Money?

Most startups depend on its founders’ money for funding, at least in the beginning. You pool your funds together to cover the maintenance and other operating expenses related to running a business. In order to grow, however, you need more.

Do you just take money from anybody willing to throw it your way? Of course not. As a business owner, you need to be aware of the strings attached to funds given by your investors. That means that every investor that you add to the table should be able to add more value to your business other than money, including social proof, experience, or knowledge that you need to scale your business. 

Raising money from crowdfunding sites like Kickstarter could also add more value to your business than just money. It can provide that initial traction needed to “prove the concept” or “test the idea” where you only build a prototype and if people believe in your product or service, they can pre-purchase the product or subscribe to your company’s mission.

These strategies in the art of fundraising tend to solve a lot of problems. In the case of Kickstarter, for example, successful campaigns often lead to community-building, publicity, and social proof while at the same time giving entrepreneurs the exact traction they need to scale their idea. 

Aside from getting individual investors and using crowdfunding sites, you can also raise funds for your business through relationship building. You need to create relationships early with potential funders and experts — that means you need to build your community network as early as possible.

Gain leverage with people early on by doing things for others without expecting something back in return. Keep doing this until you build a relationship which you can cash in on the leverage built over the months or years.

Always network because your net worth is worth your network. Remember, you need to raise money to achieve an explosive growth, increase marketing channels or platforms with proven value, expand to a different location, and add valuable assets to your team.

Startups need to raise funds for a number of reasons, including product development and market expansion. Before doing so, however, find out first if you really need to do so. Find tools around you that would simplify the process of launching or testing your business and proving the concept. In addition to that, tons of tools have also drastically revolutionized how their business could grow. Take advantage of growth hacks specific to your industry to gain leverage your competitors don’t have.

And when you do need to raise funds, you must know why you need it, what it could mean to your business, and what the additional funds could be used for. Remember, getting more and more money will not solve your problems! Don’t just grab any willing investor who shows an interest in your product. Get someone whose vision aligns with yours and who has something to contribute to the company, whether it’s social network, technical expertise, strategic help, publicity, and skills, among others.

Raising funds for your startup is a much-needed skill. Be a savvy entrepreneur and know exactly when, how, and what you’re raising funds for. In this digital era where everything is possible, you may not need tons of capital anymore to compete with large businesses.

Astrid Eira

By Astrid Eira

Astrid Eira is a resident B2B expert of FinancesOnline, focusing on the SaaS niche. She specializes in accounting and human resource management software, writing honest and straightforward reviews of some of the most popular systems around. Being a small business owner herself, Astrid uses her expertise to help educate business owners and entrepreneurs on how new technology can help them run their operations. She's an avid fan of the outdoors, where you'll find her when she's not crunching numbers or testing out new software.

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