One of the most impactful decisions an entrepreneur will be faced with is how they will choose to grow their endeavor. After a minimum viable product (MVP) is in the hands of customers, user data is being generated and collected, and a small team is built, the entrepreneur should feel bullish about their achievements and excited about the prospect of taking their idea and turning it into a full-fledged product.

Two main avenues for growth are available to the entrepreneur at this stage: bootstrapping and seeking outside investment through equity rounds. Both have their advantages and drawbacks, and both will be best pursued by being data-focused.

In this post I intend to lay out the benefits and challenges associated with each, the benefits of using data to drive the process, as well as suggestions for how an individual can decide which path to follow.

Bootstrapping

Bootstrapping refers to the process of growing a new start-up organically and slowly, using revenue to invest back into the business to drive the growth. Startups that choose this method wont have the rapid growth of those empowered by outside capital but that doesn’t mean they aren’t as successful: companies that rose to market leadership through bootstrapping include Patagonia, GoPro, and Spanx.

The primary advantages of bootstrapping are maintaining total control of the business and standing to reap all the reward should the venture succeed. For entrepreneurs who are deeply emotionally invested in their business and believe in their product or service may find themselves more fulfilled if they do not have to kowtow to a board of investors.

But maintaining total control also means that an entrepreneur continues to carry all the risk as well, which is one of the chief disadvantages of this growth avenue. Furthermore, though investors may be a headache at times, choosing to bootstrap means that entrepreneurs do not have access to feedback from experienced investors that can help maintain objectivity and inform the strategic decisions of the venture.

Why Bootstrappers Need Data

Being data-driven can help mitigate the downsides of bootstrapping, especially in the realm of maintaining objectivity and flexibility. Bootstrapping relies on improving the current state of your business by capturing new customers and doubling down on presence; data will help you do this.

An entrepreneur dedicated to bootstrapping their business should use product data captured from MVP deployment to inform the direction of their solutions, market data to set realistic milestones, and KPIs to track their progress.

Having all of this data available will help sell their product to potential customers as well as deepen the entrepreneurs understanding of their product and market. Essentially the goal should be to realize the benefits of a data-driven organization as quickly as possible. To get a more complete view of these benefits, please read my post on the subject here.

Seeking Equity

The second primary option available to entrepreneurs at this stage is to grow their company quickly by seeking outside capital. This is the route chosen by many prominent tech start-ups such as Uber and Snapchat.

Perhaps the biggest advantage to this method of growth is speed. Especially as it relates to technology, the rapid growth possible with outside capital can help entrepreneurs gain entry into the market during what can be very short windows of opportunity.

Bringing in the right investors can also have a massive impact on a venture’s strategic decision making. Insight from knowledgeable, experienced investors can help reveal vulnerabilities and opportunities that may be missed without having extra sets of eyes on the problem. As I have frequently stressed, maintaining an objective perspective is paramount to success and investors can help ensure an entrepreneur’s vision does not become myopic.

But some entrepreneurs are so passionate about their products that the loss of equity and freedom associated with outside investment can be too much to bear. An entrepreneur needs to stay vigilant and work WITH, not FOR, their investors. Navigating competing interests while striving to reach company goals is a challenge in itself, and many entrepreneurs may not have the wherewithal to do both simultaneously.

The advantage of rapid growth from injected capital can sometimes turn into a downside as well. Investors want to see their money spent as quickly as possible so that more investment can be brought in, and they can realize their profits as early as possible. Sometimes, this rapid growth can push a venture to the edge to the point where it cannot support itself. While investors see this as an acceptable risk, an entrepreneur will not view the venture as one aspect of a diverse portfolio and stands to lose much more than individuals who have invested in the company.

 Using Data to Drive Investment

In seeking equity, the challenge for entrepreneurs is to sell the future of the company. To say “Here is where the company is. With your investment, it will be here in X years”. To do this you need a tight, sellable story backed up with quantified data that support your assertions.

KPIs, market data, and product data form your MVP all needs to be quantified and analyzed to help tell the story of your future success as concisely as possible. Have you made sales? Have you gained traction in solving the problem? Are you growing customers/revenue or is it stagnant? More users, traffic, revenue?

Capturing this data from the beginning will supply concrete evidence to back up the story you want to tell investors, and the more data you have collected provides more possibilities to improve your selling points.

Which Path to Follow?

Choosing to seek outside capital or bootstrap a venture relies almost entirely on an individual entrepreneurs appetite and personality.

An entrepreneur should ask themselves what they want out of their venture. Are they solving a niche problem? If so, a narrow market may mean it is harder to attract outside investment.

Are they more concerned with solving the problem or growing a business? Some individuals may not desire to grow a multi-million company overnight, and for others that may be all they want to do.

Regardless of the  Chosen Path, You Must Stick to It

The most common fundamental problem entrepreneurs have at this stage is ignoring market signals and using intuition to guide their decisions. Having a data-driven business plan will help entrepreneurs stay focused on their product and align their business based on feedback.

Hope and gut-feelings are not viable strategies. Staying data-driven will be an asset whichever growth avenue you choose to purse, and provide a good foundation for the next steps on the path to success.

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