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Salt Lake City Bookkeeping Blog

Why You Should Raise Seed Money Through Sales

Posted by Matt Roberge on Dec 21, 2016 9:00:00 AM

Why You Should Raise Seed Money Through SalesI've been meeting with a lot of startup companies lately and many of them are trying to raise a seed round of funding. When I talk with the founders, I get curious and ask a lot of questions. I've drawn one key conclusion about something that I typically find all of them have in common.

Whatever they all believe their number one problem or challenge to be, I disagree: I feel that they all need to make sales... period.

Startup companies could solve many of the challenges that they are facing if they just made a bunch of sales. Here is why I feel all startups should raise their first round of funding through sales.

It Provides Proof of Concept

One thing that most entrepreneurs agree on is that they need to prove that there is a need for their product or service in the market. What better way to gain proof of concept than to make sales? If nobody will buy what you have, then don't even bother. 

Put out a good MVP (minimum viable product) and sell it. If you can't sell it, retool it or kill it. 

It Pushes Founders to Respect Money

I'm a huge fan of operating as lean as possible when you first start your business. Founders who operate with a lean mindset gain respect for money. 

So many young entrepreneurs think that being in business is all about raising as much capital as possible. Then comes the hip and flashy office and cars because why the heck not? It is not their money, right?

When a small business is started with owner investment and pure grit and grind, those founders earn respect for money. Then, when or if they do get funded, they are much smarter with their money, only spending it on things that matter. 

It Creates Investment Funds Without Taking on Debt

Why take on debt if you don't have to? Many business owners feel that once they get funded, all of their problems are over. However, that couldn't be further from the truth.

Once you are funded, then you have people to answer to. And they may not always agree with your strategy. Outside investors can influence your decisions and the way you run your business and you may not like how that feels. 

If you create your initial funding through sales, you are creating funds to invest back into your business without taking on any debt. 

It Is Really Hard

The truth about trying to raise your seed money through sales is that it is really hard. It is hard to grow a business without money.

At some point, you will need some sort of financial backing to grow your business. That funding can come in many forms, including a personal owner contribution, a bank loan, a line of credit, or an outside investor. 

While it is difficult to bootstrap a business, you should make your first few sales by yourself as a business owner. 

Most are Stuck with Other Financial Obligations

Another common roadblock I see for many startup founders is that they have other financial obligations that are holding them back. Most founders have a "day job" so that they can meet their current financial obligations. Maybe they have a family to provide for or student loans to pay off. 

This is a really tough thing for me to advise people on. I can see that they are passionate about their business, but they keep getting sucked back into their side job because they have to pay the bills.

I get it. I worked two full-time jobs for almost three years until I finally felt comfortable making the leap to my own business being my only job. When I finally did fully commit to my business, it took off in a big way.

The hardest thing for many entrepreneurs is making that full-time commitment to their business. Typically, it is personal financial obligations that stand in their way. If you care about your business, you need to find a way to commit your full-time effort to it ASAP.

The Answer is Not Always Money

A round of funding is not going to make your company great. The only thing that will make your business a success is you and your team. 

Some naïve business owners think that money will solve all of their problems and turn their business into a success. And once you have raised money, you are more likely to go seeking more investment, further diluting your share of your own business.

Just remember, raising money does not automatically turn your company into a success. 

Do you agree that startups should raise their first round of funding through sales? Why or why not?

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Topics: lean startup, Startup, Investing, Business Sales