I’ve been asked a handful of times in the past couple weeks about whether to take on investment. I think it’s a little funny that folks ask me this knowing that I believe in customer-funded businesses instead of raising money. I suppose they are really asking to hear the argument for not taking on investment. None the less, my answer has been:
The real question is do you have a clear way to return that investment?
Meaning for every dollar you spend on hiring a new person, advertising, product development, etc… do you KNOW you can return $2 back through more revenue?
Or are you just throwing things at the wall to see what sticks?
If you KNOW you have a clear ROI for investing/re-investing any capital, then do it! That’s how people get rich.
If you don’t know, then put a 10% probability* of the investment sticking/producing a return on the investment dollars and ask yourself if the extra debt or less equity is really worth it? *10% is the approximate percent of time that new ideas produce a return for me. Which is why I try to minimize spend while testing new ideas.
I’ve seen too many people throw away too much equity and other people’s money by not first vetting the potential ROI of what that money is being used for first.
Nail it, THEN scale it with capital.