If You Feel Really Well-Funded, Please Read This First

Look. Some founders begin with substantial seed funding, usually from family. I worked with one who got $2.5M from family. He had received so many advanced orders from chains, though it justified this kind of seed money so he could jump on a rare unicorn path to scale. This is almost assuredly NOT your case. 

But let me be clear, even $2M still makes you an undercapitalized CPG company.

Don’t kid yourself.

Now, you may have no idea how to spend $2M as you read this, but, trust me, it’s as easy to squander it as it is for the lottery winner not accustomed to managing big piles of money. 

I recently got asked what a ‘well-funded founder in Phase 1 should do differently than a more traditionally broke founder yet still Ride the Ramp! 

Well, here’s what I told him:

  1. Don’t buy premature distribution because you can
    2. Get through the Death Funnel faster and cover your fixed costs on a lean basis.
    3. Use the pile to drive traffic to your website and build your initial customer list much quicker than most do. This will get you through the Death Funnel, which kills off the slow growers who can’t survive negative EBITDA sales for more than two years. 
    4. Study your organic growth KPIs like every other founder and do everything else the same
    5. Stock-up on more packaging than you may need (big supply cluster if you suddenly grow fast)
    6. Keep most of that money for dry powder; it will be better spent farther up the Ramp.

There’s no pile of money that obviates the need for you to run your brand like an experiment. If you pay to push sales too fast, you will spend tons on inventory before you realize you have a critical flaw you overlooked.

Yes, if you raise a massive amount, you can use it to paper over your past mistakes. Still, this negative EBITDA business will be tough to find additional investors for unless you are already buddies with them.

A pile of seed money does NOT guarantee your product is ready for exponential acceleration. The two things are unrelated.

Don’t let money lull you into a false confidence that I see with too many serial entrepreneurs. You’ll most likely get burned. The latter stories, too, do NOT make it into Inc or Entrepreneurs magazine, which sells optimistic clickbait. 

Dr. James Richardson

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