Previous Lecture Complete and continue  

  1.13. Trap 3: The Money Trap (7 min.)

This trap is actually good news for entrepreneurs who don't have much money. While most entrepreneurs believe that they could be successful if only they had more money, we studied entrepreneurs who start businesses with less than $1000 and entrepreneurs who receive several million dollars in investment. We found that although we all assume that more money is better, in fact, too much money at the wrong time can kill you.

The truth is having less money can help you focus on the external market - on your customers - and increase your ability to develop creative solutions for those customers. Relying on customers to pay the bills creates a natural, intense focus on their needs.

"I believe that too much money in a startup is not only unnecessary, it's actually toxic. It causes you to pursue losing strategies for too long to the detriment of the winning strategies. ...If you look at the truly great startups,...they've been hyper frugal (e.g., Cisco, Google in the early days, Yahoo! in the early days, [and] Microsoft). I think there's an inverse correlation between the amount of money an entrepreneur requires and the potential chaotic success of a startup." - Mike Maples Jr., Managing Partner, Floodgate

(See Nail It Then Scale It, pgs. 13-17)