Have less funding than your competitors? Good!

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I’ve sometimes joked with companies in our portfolio that the best way to deal with a better funded competitor is to use their own relative lack of funding to their strategic advantage.

But actually, this solution isn’t meant tongue-in-cheek – I’m being dead serious.

While we have a few companies in the portfolio that have, for various reasons, raised significant amounts of capital, many of the businesses in which we have invested haven’t. Not only are they reasonably capital efficient measured alone, but when compared with their peers, a number have raised far less capital than companies with which they compete.

I’m serious when I tell companies that the best way to combat an overfunded competitor is to take advantage of those things that capital constraints naturally bring along with them and I’ve seen it often work very effectively. Sharpen your company’s focus, don’t make stupid mistakes, don’t get distracted by the 10 things that sound cool but that you really have no business doing, keep your marketing efforts extremely focused and tight, don’t over-hire in sales, don’t over-hire everywhere else, draft where you can on the money spent by your competitor, stay laser focused on product and don’t panic.

I’ve watched this play out a large number of times. And while sometimes the brute force that additional capital brings allows a company to push harder and faster, often having a relatively large amount of capital available simply means that you’ll waste a bunch of money, get distracted and, stumble. With the capital markets heating up and more and more industries seeing 1) a greater number of competitors and 2) too much capital invested, these lessons have never been more important. I wrote about the same idea a few years ago when I suggested that you were burning too much money. The same holds true now, with the difference being that you may be in a great position not only not to burn too much yourself, but also to take advantage of someone else who is on the opposite path.

Good luck!

  • I really like the drafting analogy – encapsulates the first mover trade-off well.

  • Anonymous

    I’m tired and at first glance read the title as “Having less fun than your competitors? Good!” It seemed a little harsh.nnThe actual title and actual post were good reminders about focus. Thanks šŸ™‚

    • that’s pretty funny ian. although sometimes the entrepreneurial life isn’trnall that fun, i sure hope on balance that it is!

  • George Roberts

    Seth,nnAs you know we could not agree more with you on this topic… we love capital efficient companies who get the job done without over raising and over spending capital. Good to see you at the RMVCA conference.nnG

    • Thanks for the comment, George. And great to see you as well!

  • Anonymous

    Good post.nnI use the term “stealing heat” because just like an apartment if you keep yours cold and your neighbors keep theirs hot you will use almost no energy.nnIf your competitors waste a ton of money trying to get the market to move, as long as you position yourself wisely you benefit nearly as much as they do without burning through money.nnIts very easy to forget that every dollar you spend you will pay back with a big interest payment. Spending $25k here and $50k there along with a couple of expensive hires that don’t leverage….its easy to go through an extra million dollars. Just remember you will pay it all back.

  • Gordon

    Good post.u00a0 I can relate across the board.u00a0 I also like to remind my team and investors that it’s much harder to get a big return on an over-sized investment than it is on a smaller focused one.

    • there’s no question that this is a key point, gordon. remaining lean andrnnimble allows you more options when it comes to the time to sell thernbusiness…

  • RK

    Good strategy, except if your well funded competitor happens to execute really well, or if the market and opportunity are proven and require real scaling on the business side (and you were not successful in raising the capital required for it).