Minimum Resource Constraint – the Anti-Dilemma

It’s one of those things that you keep thinking about “how much to raise”. Having sat with my cousins (I sit on their board at http://www.getbrandid.com) again this week I realised that we often look at how much to raise in the wrong way. In the last few years, a recurrent piece of advice I was told was “raise as much as you can when the opportunity presents itself”. Whilst it seemed rational, it is actually the anti-thesis of what young startups should do IMHO.

Our own example showcased this – I for one believe we raised too much money and actually thinking back to the earlier days the difference in what we produced when we had $100k or $500k or $2m in the bank never moved the needle by the proportionate quantum; in fact not even close. Having spent time in the last couple of months thinking over this and having read Eric’s “the Lean Startup” I think the biggest mistake any startup can make especially first time entrepreneurs; is take too much capital. Inadvertently you lose focus…

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Why?

I have a simple example – you have three things you can do; each thing will cost you $1 to do. If you only have $11 you will be so much more focused and you will only have ONE priority. Now imagine you have $3; what will you do – 3 x the one thing? Probably not… you will actually split your focus / attention and rationalise it buy saying that you NEED to do this.

Also – the less you need to raise the less you focus on building a business for VCs and you spend more time building a business and solving real problems; intrinsically this will attract investors!

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Hence the title

A lot of us have been told about resource as a “negative” constraint but I think it’s worth looking at Resource Constraint as an Anti-Dilemma (its a good dilemma!) of sorts – (obviously you need some resources). The less you have; the more frugal you are and the more focused you are as your survival depends on that one decision. The more you have the more you are likely to “diversify” and “branch out”; you end up juggling a lot more and actually reducing the “importance” of testing one thing at a time.

Everything being about a young company is about being lean…

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