Startup Lies Part I – “I Need Capital”

The solution to many problems, whether in life or in building a startup seems to be capital. A lack of capital, the thinking goes is the reason you don’t have customers, the reason no one has heard of you, the reason you can’t build a feature in your software or why you can’t even start your business.

Now, I would agree that you do need some capital to get started. However, the amount of capital you need is often vastly overestimated. I would argue that capital / money in a startup, is similar to intelligence in a startup founder. With regards to intelligence you just need to meet a certain threshold, beyond which that intelligence probably won’t be the deciding factor in whether the startup is successful or not. And just like capital, the amount of intelligence required to start a new company is often vastly overestimated by onlookers.

Let’s imagine that there’s someone out there who is determined to succeed. Now imagine that you can slowly strip away his or her intelligence. You will find that the amount of intelligence needed probably isn’t as much as you initially thought. For example, we could take Bill Gates as he is. Then slowly strip away his intelligence. At a certain threshold he may not have been able to build Microsoft, but how much intelligence would we need to strip away from Bill Gates so that he could just manage to run a fleet of taxis or to run a fast food franchise? Probably quite a lot.

Capital is the same in this respect. You need to meet a certain threshold (which is less than you might think), at which point you can get started and it is likely that capital will no longer be your limiting factor.

Specifically, with software for example how much does it actually cost to get started? Creating a company and getting incorporated, getting a landing page, creating the first version of your product, getting cloud database and hosting infrastructure via AWS or a service similar to them will set you back (if you can code) around £50. If you can’t code and you hire someone after due diligence this cost may increase to around £5,000 – 7,000*. This may sound like a lot of money, however this is a relatively small amount of capital compared to starting a restaurant or even putting a down payment on a house or a flat. It is also vastly less than would-be founders often try to raise from investors. Often would-be founders try to raise tens of thousands, if not hundreds of thousands of pounds to get the first version of a product out.

However, the need for capital isn’t just blamed for not starting a company. Like a patient asking for antibiotics for a snotty nose (antibiotics do not work against viral illnesses), the allure of capital seems to be that it is the panacea for all problems a startup faces from inception onwards.

But, capital fundamentally cannot solve the duty of a startup. It is worth asking what a startup is at this point. I think one of the best definitions is provided by Steve Blank:

“A startup is an organization formed to search for a repeatable and scalable business model.”

Capital cannot tell you how to reach customers. And any successful product or service which is going to succeed needs a certain amount of virality in any case. If you cannot even get enough customers to survive and spread a little then you will fail even if you do have capital.

Capital cannot tell you what your business model should be. If you had money pouring into your business and you were still spending more than you were making, more capital won’t be able to fix this problem for you.

And lastly, but most importantly capital cannot tell you what you should be building. It cannot tell you what your customers want, what features to build, what the UI should be like and how to solve the problem you are trying to solve should be solved.

So why are there so many people who are constantly on the look out for more capital? Why are so many people trying to blame not having enough capital on even getting started? I think the answer is simple:

Courage is in much shorter supply than capital.

To be frank, in the current climate, capital is easy to raise from investors because interest rates are low, technology companies are one of the main drivers of the economy (so investors are actually looking to invest more and more money) and technology companies are remaining private for longer and longer so the stock market doesn’t provide the opportunities it used to.

What I see more commonly is that founders themselves are not brave enough to go and build and get started. Even learning to code doesn’t usually take that long to build a v1. If someone seriously thought that their product would make them a millionaire and that it would change society for the better, it sounds reasonable to me that they would want to spend 3-4 years learning to code. But people don’t and the reason is that they often don’t have the courage in their convictions to dedicate a portion of their life to learning the skills necessary to achieve their goals.

Many people have bought into the myth of not having enough capital. They’re wrong.

Next week we shall discuss why “unlimited holidays/vacations”, which companies like Netflix offer are actually BS.

*You could significantly reduce this cost as a non-coder if you could learn enough code to make the first version of your product or if you are able to use non-coding software already out there to prove your initial hypothesis, at which point you could ask potential customers to pay for your product with a promise to build the full product with the money they give you.