Getting around the ‘Underfunded’ problem

Your capital requirement can be pretty large if you plan to run a 24×7 critical business IT system or want to build highly scalable software applications or want to target large consumer markets, than for e.g. if you want to run a boutique digital marketing business.

When your business is underfunded, everything is compromised, the team, quality, distribution, marketing, sales system, speed…nearly everything. That slows you down. Stretching out the time it takes to reach product maturity. For a tech company this is dangerous. It is eating into your window of opportunity. The tech landscape changes fast. Also if you get in with your product at a later stage, gaining customers becomes that much harder. Much opportunity can be lost. Worse still you may miss the window of opportunity altogether.

How do you break out from this? Better still how do you avoid getting trapped in a situation like this?

Being well funded is the obvious answer but getting funded itself is a low probability event for most start-ups. Getting well funded can be even harder, especially so in places where risk capital ecosystems are not so well developed. It might be easier to find initial capital (angel fund) than follow-up capital in such underdeveloped ecosystems. Leaving you stuck in the middle of no where at a later stage in the start-up lifecycle.

You can adjust to the low capital availability or lack of it. The real answer lies in the design of the business model.

By innovating on the business model, you may be able to scale down your funding requirement or at least postpone it to a later stage in the business life cycle, giving you more time to work on it.

Business Models are a very effective way of getting around the shortage of funding. Its an option filled with many possibilities.

But what about the business model can you change? The simple answer lies in examining the number of parts that go into creating the engine that would generate revenues for you. The more parts there are to the business, the more is the complexity of the business and therefore, higher the cost and capital required to put it in place and run it. Simplifying the business model by reducing the number of parts that go into creating your business engine is a very effective way to bring down the capital requirement. Yes it may mean using other peoples services, sharing revenues etc. which could reduce the size of your pie, but, it may also be a surer way to gain control and find success.

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