- Vinay Nair
Frugal Startups: Advantage Over Well-Funded Companies
If words of caution from the likes of the IMF, OECD, and WTO are to be believed (as they should be), the world economy is headed for a rough ride in the days to come. With a slowdown in global growth prospects, investments are also slated to stagnate, leaving new startup founders with furrowed brows and little money in the bank. Coupled with many celebrated unicorns' uninspired turn at IPOs and rising concern about the so-called "Series A Crunch", this economic decline seems to be painting a rather gloomy picture for aspiring entrepreneurs, and the desperation for bagging VC money is turning more clamorous by the day. However, forgetting what seem to be storm clouds looming over the startup scene, I would like to take a look at the brighter side of things.
Startups have often been described as the "growth-engines" for the global economy, especially in its emerging markets.
Their success and prosperity can often effectively contribute to greater health for the economy at large. While it may seem to many that the funding crunch can potentially derail their prospects in this regard, I beg to differ. By pushing more startups towards smart and efficient use of frugality, this crunch may ultimately prove to be a blessing in disguise for the startup community. In my experience, frugal startups, more often than not, have the edge over most funded companies which start making headlines right from its inception for all the money it has bagged from investors. While funded firms may be the celebrities of the startup scene in its early days, many of them fail to make much of all that money and end up in dire straits anyway. On the other hand, frugal startups often find themselves shedding their underdog status to put together an enviable story of self-sustaining growth.
There are several reasons why frugality tends to serve companies better in the long run, with notable names like Shutterstock, GoFundMe, and Cards against Humanity having carved out a niche for themselves and growing to enviable heights, all without depending on heavy funding in their early days.
Choosing Frugality over Funding Saves Time
As cheesy as it may sound, time is as important as money; especially in the early days of building a business, when one needs to fine-tune all elements of the business model as well as the product/service before going to market. When the start-up founding team decides to forego the herd mentality of running after VCs, they manage to save a lot of time that is better invested into the business itself. Instead of sending pitch decks to every VC they can think of, and staring at the telephone for a call (or refresh one's inbox, because it's 2019!), they can use that time to work out what their customers want to use, rather than what potential investors might want to hear.
As I have said elsewhere before, pitching to venture capitalists for investments is hardly any different from perfecting a sales pitch, or strategizing a marketing model.
It involves extensive preparation that nobody talks about once they've bagged an investment and the money has been wired to their account. Moreover, considering that the number of people who get that money in the first place is so low, there seems to be little justification for wasting time doing all of this instead of hustling to improve their business, as all great founders do.