Jaime Medina
Following the first two articles, where we explored the key aspects of business models and funding strategies for startups, we’ll now turn our attention to the most critical factor of all: the personal alignment of the founder with the project. It may sound cliché, but at the end of the day, companies are made of people, and the founder’s personal fit with the type of project they want to launch is essential.
A common mistake is assuming that founding a startup is the same as founding an SME. It’s often said that every company we now see as established was once a startup. We believe this is not the case. An SME has different ambitions and, as we’ve discussed in previous articles, different funding models that are better suited for very different business models than those of a startup. Therefore, this decision needs to be made by the founder when beginning the project.
There are three main differences. First, if you want to create a startup, having external partners is crucial. As we mentioned earlier, equity will need to be distributed to venture capital investors to achieve long-term profitability goals. This doesn’t just mean giving up some economic control, which may be uncomfortable for the founder, but more importantly, it involves losing political rights. This can have a significant psychological impact. It’s no longer just your project; you have to answer to other shareholders, which adds another layer of stress. Additionally, these shareholders expect a high return, and even though the financial impact is long-term, they will want to see tangible results in the very short term. This creates a lot of pressure for the founders and emphasizes the old saying “no pain, no gain” in an exaggerated way.
The second major difference is cash flow management. We’re including this in the third part of the article on psychology because its impact on the founder’s peace of mind is profound. One of the most anxiety-inducing aspects for an entrepreneur is watching the bank balance drop uncontrollably toward zero. This happens because startups raise funding rounds specifically to spend that money. If a startup raises €500K, it’s because they plan to spend all of it, and at some point, the balance will approach zero. That is incredibly stressful for the founder.
Thirdly, the entrepreneur needs to reflect on their personal goals and ambitions. Starting a project or a business to achieve a comfortable income that exceeds a typical salary is completely valid and commendable. It’s also fulfilling, as it creates jobs, fosters innovation, and so on. This mindset is perfect for starting a small business. In the case of a startup, however, the ambition must be genuinely transformative, aiming to revolutionize an industry. This mindset is often driven by motivations beyond just money. In fact, venture capital funds often say they want to invest in founders who aren’t motivated by money alone but who won’t stop until they realize a grand vision. Meanwhile, the investors, having provided the capital, also benefit economically, just as the founder will, of course.
To sum up the three articles we’ve presented, this decision should not be taken lightly or influenced by trends. Nowadays, it seems like everything has to be a startup, but that’s not the case. As we’ve already seen, not all business models should be startup-oriented, nor should the financing structure dictate one model over another. But more importantly, the founder must understand that if they embark on the startup path, they won’t be doing it alone. They will have to answer to others, watch the bank balance drop, and may ultimately find themselves chasing a unicorn that doesn’t align with their personality.
If you’re going to take the plunge, think carefully. Consult with us or other entrepreneurs before you dive in. Either way, whichever path you choose, you’ll be making a significant impact, solving a problem for someone who didn’t have a solution before, and creating jobs along the way.
Go for it!
