Self-funding versus raising money for your business
I often get asked about the difference between the two. The difference is quite straightforward.
In a self-funded business you are spending money to grow the business as the money comes in from customers.
It’s most common to start by doing consulting for other businesses which allows you to get the money to create software. My co-founder and I had a successful marketing consulting service which allowed us to self-fund the creation of software. We built about a dozen different products before Crazy Egg became a reality and started getting traction. 37signals, now Basecamp started out as an agency where they provided design services to other businesses before they created software. There are many other examples of this, one of the latest being Close.io where the team started out providing sales services to other companies.
When you raise money you are able to invest in your business ahead of your revenue because of the funding.
This enables you to make long-term investments for your business that you typically can’t make until later in a self-funded business. It also takes a different type of discipline to avoid spending the money you have too fast. In a self-funded business you don’t tend to have this problem early on because you just don’t have the money to spend.
After personally experiencing both I don’t prefer one over the other. Regardless of how you fund it, what you want to do is create a sustainable business with a long-term focus where the goal is to grow it in the smartest way possible.