This month I’ve had the pleasure of working with three impressive female founders. Two of them are celebrity founders of the top health & wellness platforms. The other founded a leading direct-to-consumer (D2C) eCommerce brand.
As I reflect on the time I’ve spent digging into their stories and helping them take these companies to the next level, it’s clear that each founder’s path offers unique lessons learned. Let’s dive into the most noteworthy takeaways.
Know When to Go All-In
The D2C eCommerce founder was a first-time entrepreneur. Several years ago, she grew frustrated with her day job and decided to start blogging about her passion: food. Eventually, her blog amassed such a following that she decided to launch an eCommerce company and website where she could sell uniquely branded food products. In some ways, this paralleled the path Glossier took in evolving from a cult-like blog into a full-fledged D2C beauty company.
In the case of the eCommerce founder, her company gained significant traction in a short time. Early advisors told her it was time to quit her day job and turn her “side hustle” into a full-time gig. It was only then that she could put in the time she needed to legitimately grow the business, hire people, and raise capital.
Bootstrapping May Not Be Ideal
Each of the three founders admitted to initial plans of bootstrapping in order to reach scale—and only then seeking outside capital. While this may work in some cases, often it’s simply not viable.
For example, imagine you’re traveling from Los Angeles to San Francisco. Your initial mode of transportation is walking. If you decide to take a detour to a car dealership and buy a car, you may have temporarily deviated from your path.
In the end, however, you’ll arrive in San Francisco much faster than you would have on foot.
Similarly, the three founders mentioned that despite hoping they could bootstrap up to a certain point, they were essentially running in quicksand, spread too thin, and unable to pursue obvious growth opportunities. Once they bit the bullet and sought outside capital, they were no longer stuck in neutral, and finally had the ability to grow their companies and chase down new opportunities.
Raise Only What You Need & Be Wary of Dilution
Once the founders decided to raise capital, they were faced with an important question: How much did they want to raise?
The two health & wellness companies are dealing with this right now. The quick answer is to only raise what you need.
That said, there are a couple of factors to consider.
The first is credibility: In evaluating a company, investors want to see that the management team is both credible and responsible. Asking for a $20 million seed funding round, for instance, is never well-received when you only need $1.5 million to address your burn rate and reach your stated milestones within 18 months.
You’ll need a credible, detailed plan of how you intend to use the proceeds to get where you need to be before your next capital raise.
Another consideration is getting yourself into an expensive deal for the investor. This could take the form of either excess capital raised or too little ownership (i.e., dilution below 15%). When an investor takes on an “expensive” deal, suddenly they have an axe to grind and feel extra pressure to ensure the deal works out. They need it to be a homerun to justify an expensive bet. As a result, while you think you may have lucked out on a good deal for the company, in this scenario you risk having a disgruntled board member breathing down your neck.
On the flip side, seed stage dilution should land around roughly 15-25%. While this point is more relevant for investors, too much dilution may result in a disinterested, discouraged management team when they realize their big payday is much smaller than they had dreamed.
The best outcome is to raise and price a fair deal with a new board member as a key asset to the company—through additive experience, guidance, networking, and great stewardship.
Hire Good People & Close the Revolving Door
I helped each founder raise capital because they needed the funds to hire good people. As is the case in many startups, the founders tried to do everything themselves in the companies’ early stages.
With both health & wellness companies, the founders took on too much. Because they were tied up with mundane, non-core items, they were unable to chase down the many growth opportunities that had presented themselves. The companies could have been growing at 10 times their current pace, but the founders didn’t have the bandwidth to achieve this.
For all three companies, the founders resorted to Band-Aid solutions in hiring cheap, temporary labor. The problem is that they got what they paid for. Content and sales were among the most important areas of attention for these companies—yet the sub-par work quality emphasized the fact that they were grappling with a revolving door of temp workers. These temp workers would leave after a few months, which would set the founders back as they’d then have to recruit and train new people.
After raising capital, the founders were able to hire some of the best content strategists and salespeople, among others, to take their businesses to the next level. By paying good people the salaries they deserved, employee retention improved and the companies built real intellectual capital. The skilled new hires also freed up the founders to do what they did best—operate and grow their companies.