Maybe the dearth of VC money for Internet-based businesses is a blessing in disguise, especially during the current recession.
A post at the e-commerce focused blog hipmojo.com offers the following observation:
Web entrepreneurs have had some bad coaching over the past 15 years, encouraged to raise too much, dilute too much, spend too much and have too little to show for it. A lot of that bad coaching has come from VCs, so it is very refreshing to see a VC point out to the real benefit of the Web, which is the ability to do things for a fraction of the cost of traditional offline ways. That is the real power of the Web, that is what keeps old media executives awake at night.
Indeed. The web has two advantages relevant for current conditions.
First, the web can offer products and services to customers at a much lower cost. Since offering “value” is your best hope of growing a business right now, this gives web-based businesses a significant competitive advantage.
This leads directly to the second advantage. Web-based businesses can offer lower prices due to their lower start-up and operating costs. Since money is tight, the ability to bootstrap a start-up via a lower cost web-based business model may be the best path to launching and growing a business.
Clearly, not all businesses can take advantage of an Internet business model. But we should expect to see growth in e-commerce over the coming months as more entrepreneurs harness the power of its lower costs, which create the ability to offer better value to customers.
Amen.
I bootstrapped my Internet business 11 years ago, in 1998. I built the first web site myself, and bought my first inventory with a credit card and personal savings. Launched the whole thing for under $1,000.
Now I still have complete ownership, and we made it into the Inc 5,000 (not to be confused with the Inc. 500, because we were in the 2,300 range).
My next challenge is financing the next stage of growth as we have grown into a Second Stage company, and need a much larger line of credit to buy still-growing amounts of inventory to keep up with our sales growth.
Right now, every bank wants a personal guarantee. I’m going to sign one for now, because the stakes are still relatively low. But I don’t know what I’m going to do two years from now, when our line of credit will probably need to be closer to $1 or $2 million. (We are a seasonal business and importer on top of it all, so we have to make huge purchases in advance of our selling season.)
I don’t want the very unlikely potential failure of my business to be my own personal ruin too. Isn’t that the point of a separate business entity?
What do I do next? Slow down my growth? Sell out? Give up some equity to investors? I don’t know.
But I suppose this is what you call a “good problem to have” compared to what a lot of other entrepreneurs and businesses are facing right now. I’ve gone through those kinds of problems too, and they are much more stressful.