Breadwinner

As an investor, I understand why angels, VCs, and even high-profile early-stage accelerators seek evidence of potential future success when evaluating newer startups. Yet would-be founders and startup fundraisers often find that one of the biggest challenges of building something new is supporting themselves and their families while doing it.

Startup Formation Costs Are Demanding

In quiet, private conversations, one of the difficult challenges of founding a high-potential startup company emerges. It comes from some of the things that stand in the way of securing support from potential investors, which often hinges on:

• Finding a co-founder or two  and hiring the initial skeleton of a team that covers critical functional bases.  This shows that you are intent on building an organization rather than a one-person band. As the team grows, so does the number of people who need support.
• Developing a working product prototype that meets the minimum requirements of some potential customers. Enough so that enough prospects will step forward and try it to provide that initial glimmer of a demand signal to potential investors. Prototypes cost time and money to create and test.
• Securing initial revenue to demonstrate that the product meets a need well enough to be paid for. Finding early adopters often demands luck, time, and sales skills.
• Locking in some sort of defensible “moat” like a provisional patent application, a trademark application, an exclusive license, an FDA Breakthrough Designation, or some other structural barrier to possible competition. Moats are not free, requiring time, effort, and legal fees.
• Building up a pipeline of eager potential customers who will share their enthusiasm in reference calls. Prospecting takes time and contacts.
• Creating a polished investor pitch that demonstrates the critical bases are covered and the founder understands all of the essential variables and is well-positioned to succeed demands time, skills, and networks.
• And so on…

The challenge is that achieving all of this requires time and resources. Unless you have succeeded in generating excellent returns for investors in past projects (which likely also means you secured a nice pile of self-funding capacity at the same time) or are raising in the middle of a massive bubble, investors are highly unlikely to invest in a company at the “napkin” concept phase. Ideas are a dime a dozen. Investors want to see demonstrated skills at execution plus evidence that the idea is indeed a good one.

Enough Bread to Eat While Founding

The consequence is that the often unspoken founder challenge is how to survive during those initial months or years of company development. People build startup companies. People need food to eat, a place to sleep, clothes to wear, a vehicle to go places, and potentially funds to pay off student or other debt while pursuing their dream of building a company. The question I get asked by founders is how do they make ends meet? How do they gather the resources they need? Where can they find investors who will take an early chance when they are struggling to make the demanded progress?

I know that stressed feeling. I remember when I first began founding companies. I remember the year when I made exactly zero dollars despite historically being the primary breadwinner in my family. I know that every time I have migrated to building a new startup company, it has meant a sustained period of no income while I built the foundation of a new organization.

Breadwinning Strategies for Startup Founders

As a founding startup CEO and a coach of founding startup teams, I know the struggle of how to sustain oneself while building value. This pattern continues through the early stages when investors sometimes demand that cofounding teams take a below-market cash compensation rate for their skills,  sometimes for years, to demonstrate their commitment and “earn” their equity. I know that being a founder means investing your time, your talents, your energy, your passion, your insights, and potentially all of your financial resources in this risky venture.

When asked about solving the conundrum of how to win enough bread to survive the founding phase, I mention the following list of possible sources of funds to consider and explore:

• Leverage your current breadwinning by making your startup a temporary side hustle:  While you cannot do this forever – and investors will often expect and demand that the price of their funds will be your full-time devotion to the cause – it can be a place to start. This means working on your potential startup on off-hours while holding down a paying job. Remember that you must not use the resources of your paid position to develop a new venture, and you should check your employment agreement to ensure you are free to pursue a side hustle without your current employer claiming it for their own.
  
  
• See what bread you have in the freezer by evaluating your personal reserves: Have you built up savings that you can use to self-fund your investment in a new startup? Can you stockpile bonuses, extra cash, and other resources before launching into the unpaid startup founder journey? Sometimes, pursuing a high-income career phase before jumping into startups can allow you to amass resources for the initial stages.
  
  
• Minimize the amount of bread you need to eat by making your lifestyle lean: Used cars, smaller houses, lower rent, fewer trips, and so on are all ways to minimize your day-to-day budgetary needs and stretch each dollar further. No one should jump into founding a startup while pursuing a lavish lifestyle. Investors will also notice such things, which may call your commitment into question – and will likely make your startup formation journey much more stressful.
  
  
• Get donations of bread by seeking support from those who care about you:  Many a startup founder has relied on financial support from an employed spouse, a resourceful parent, or even a generous co-founder. In fact, I think this is one of the most common paths to securing the resources you need. Not being married or having well-off parents is often one of the reasons a potential founder just cannot make the leap. Remember that support like this makes such souls important stakeholders in your venture, and it is essential to have upfront and forthright conversations about their risk tolerance as well as yours. I recommend that you prioritize your precious relationships over your startup if you reach the point where you must choose.
  
  
• Secure some specialty bread by evaluating the possibilities of grant funding, accelerators, and other business formation programs: Sometimes, universities seeking to out-license their technology will also have programs for a modicum of startup capital. Sometimes, local economic development groups will offer resources for specific expenses you can access. Sometimes accelerators will provide a bit of funding; however, you must understand how much time investment is required and the costs of such investments (there are usually strings attached!). Sometimes, government grants can be secured; however, do not underestimate the costs and time required to apply and the gaps in funding that need to be filled.

Figuring out a way to sustain yourself and potentially your family while forming a high-potential startup is often a challenging puzzle to solve. Investors do not want to hear about how you need their money to put food on your table as they want to invest in building the company (I know…feeding you means you can spend time building the company, but it is often not heard that way). While the potential for entrepreneurial wealth-building is real, make sure to assess the risks (most startups fail!) when deciding to embark on this path. If you are a critical breadwinner for your family (even if you are a “family” of one!), plan carefully for how you will have enough bread to go the required distance until you can get some bread ingredients from other sources, including paying customers and/or excited investors. Ultimately, you may decide not to take the risk.

Important Sidenote: The Ability to Found a Startup Often Reflects the Privilege of Past Resource Availability

When I look at the list of possible resources above, I am struck by just what a privilege it is to pursue building a startup. Many have brilliant ideas, tremendous work ethics, and other characteristics that can underpin the formation of a successful company, yet do not have access to such resources and, as a result, may be blocked. This means that often the founders who can make a go of it are those who have already been supported and have amassed the resources to make it through that dry spell to the point when investors may be willing to take notice and back them. It is absolutely not a fair playing field – and those who come from less wealthy backgrounds and whose families cannot connect them to wealth are handicapped. I wish it were not so, but at least let us all recognize that it is and help those we can.

I am encouraged that there are emerging programs and initiatives designed to bridge the gap, and I hope they will result in a broader, more diverse group of founders succeeding. One of the reasons I write this blog is to offer free outreach to all founders who are learning as fast as they can—living out my purpose of seeking to provide a hand up to any who wish to take advantage of what I have learned walking the entrepreneurial road.