A False Mantra: Breaking the Start-Up Funding Myth
Written by Mike Seiman Tuesday, June 19 2012
Are You Caught in the Trap?
Take a look at the personal notebook of any business school student and you are sure to find some version of this mantra scribbled in the margins:
1) Cultivate your idea.
2) Write a business plan.
3) Identify possible investors.
4) Make your pitch for money.
It makes sense, of course. On the visionary road from idea inception to taking over the world, getting funded can seem like the golden ticket. As an entrepreneur, there is a huge emotional payoff in having an idea validated by someone else investing his/her own money in it.
It has always been my belief, however, that raising money should be the means to an end, and not the end itself. To me, being an entrepreneur means riding an idea to its logical extreme and then taking it beyond that point, to what others would have thought impossible or, at least, improbable. And, while investors may make it easier to get to the furthermost logical place, they tend to get squeamish when you start talking about taking it to the next level.
I started my business while still a college student; a friend and I were successful in creating a handful of entertainment websites and driving a respectable amount of traffic to them. It soon became clear that our growing audience was worth money to advertisers and so, filled with more self confidence then we may have deserved, we decided to build our own ad server to monetize our traffic (no small feat in 1999). It wasn’t long before friends and contemporaries saw what we were doing and began to ask if we could help them generate revenue from their website traffic as well. Over the course of a few years, we grew the number of clients we were working with in an organic way to the point that our business became a recognized, competitive ad network.
Today our hobby, now CPX Interactive, is a global online advertising network serving more than two billion ad impressions every day across more than 60 countries, employing more than 70 people. We have never taken a single round of outside funding and I believe that we are a stronger company for it. Sure, there have been many times along the way where we have encountered hurdles that would have been easier to clear if we had taken on investors, but our philosophy was to make every effort to clear the hurdles on our own and to take money only as a last resort. Remarkably, armed with that attitude, we have found creative ways to build a healthy business that I do not believe we would have created if we had taken the easier path.
In the summer of 2007 the online advertising sector became very hot. There were significant acquisitions and investments being made, especially around the ad-serving model. Friends who had also started online advertising companies were positioning themselves to be bought by bigger organizations that were looking to carve up the industry into pieces, some serving the advertiser side and some serving the publisher side. I found no shortage of advice for me to do the same but I knew that while taking that route meant an early payday it also meant giving up control of my vision.
Fast forward to present day, the online advertising ecosystem is going through a reconsolidation. Prevailing wisdom has given way to the realization that the industry had become too fragmented and many of the business models that did not allow themselves to fully develop before taking money simply cannot live up to the promises described to their investors in those original business plans. The same investors that gave other young CEOs what they believed to be their ‘big shot’ are now ready to move onto the next big thing and have no problem allowing the earlier businesses they invested in to simply wither.
Since my company, on the other hand, has never sought funding, we are not obligated to anyone but ourselves. If a new technology emerges that we find valuable, we embrace it. If a new practice is developed, we create a new product around it. If a division is no longer performing, we close it. We can do these things without looking over our shoulder and wondering if these moves will pass muster with those looking to protect their investment..
The reality is that you cannot run and grow a company without capital. So if you decide to take money from investors, make sure they share your vision. That said, what separates a true entrepreneur is the belief that outside capital is a tool that should not be wielded lightly. The mantra of writing a business plan designed to attract investors is an academic exercise, but knowing in your gut that money will only serve you if it allows you to achieve your own vision is the true sign of an entrepreneur.
Mike Seiman co-founded CPX Interactive over 10 years ago while at Hofstra University and has since grown the company to $60MM in revenue without any funding or outside investments. Mike was selected as a semi-finalist in Ernst & Young's Entrepreneur of the Year (2009 and 2010).