October 16, 2024How many $50MM exits have you read about in the mainstream business press? Even regional business publications don’t highlight what I’d call huge wins enough. You read about unicorns. If you’re not taking on hundreds of millions in funding and exiting / IPO’ing for billions, you’re seemingly forgotten. That dynamic has completely warped our understanding of what entrepreneurial success ought to look like. That’s why I sat down with Greg Head to talk about what he calls “Practical Founders” — folks building super successful SaaS startups/companies who are eschewing VC funding in favor of sustainable growth.
The under-discussed truth is that you don’t need big investors to build a successful company.
When asked about the definition of a practical founder, Greg explained that it’s all about building valuable software companies without outside funding. He says, “Practical founders…are creating software businesses, growing them, and they’re still really valuable, but they’re doing it without VC funding. It’s the hidden majority that we don’t hear about.”
This type of founder focuses on creating sustainable growth, often through bootstrapping, instead of chasing unicorn status.
Many founders assume VC funding is the only path to success, but Greg notes that “fewer than 20% of all software companies here in the US get VC funded,” and of that small percentage, only 1% go on to become the billion-dollar unicorns we hear about. The truth is, you don’t need to play the high-risk, high-reward VC game to build a profitable and impactful company.
If you want to hear the entire conversation (which I highly recommend if you’re a founder looking to grow), you can watch it here:
Alright, on to the tl;dr…
When discussing first-time founders, Greg touches on the pervasive myth that every startup needs VC funding. Many founders feel pressured to raise funding as a badge of honor, without realizing it might not be the best path for their business.
Greg points out that “the funding industrial complex highlights funding announcements and pushes and promotes those for a lot of clapping. We see, of course, the big public companies and the unicorn success stories — there’s a place for that. It’s just of the VC-funded minority left, fewer than 20% of all software companies here in the U.S. get VC funded. 1% of that are the ones we hear about that are billion-dollar success stories, like a few dozen or so… 70% of founders who raise VC…walk away with $0.”
The stakes when raising institutional capital are high — immediate pressure, stress, outside influence… it’s not inherently bad, but it’s most certainly not for everyone. It’s a game that often favors investors more than founders, and as Greg puts it, “Founders usually don’t win that game.”
You should instead focus on securing paying customers and building a scalable solution (and steady revenues).
“There’s really no place for institutional capital when a founder grows a business and sells it for $50 million.”
As Greg sees it, the entire funding ecosystem is broken — from entrepreneurship classes in college to the media system built around funding to how founders view success. He likened it to drug dealers:
“We’re starting people off on the hardest funding drugs possible, saying, ‘Oh, you need to go raise funding and go pitch’ and do all these kinds of things. There’s a place for that. Sometimes you need to do that. I’m not against it. I’m just saying it’s completely over prescribed by funders and misunderstood by most founders. To be clear, you shouldn’t raise outside funding until you know you can’t go another foot without it. You should procrastinate funding the whole way and hurry up and sell something to prove it and get revenues coming in.”
When taking on institutional funding, not only will you be diluting your ownership stake in the event of a successful exit/IPO, you’re also taking on massive risk, pressure, expectations and more. If you don’t have to take on funding, Greg argues you shouldn’t.
Sure, if you’ve truly built a rocket, then maybe you need rocket fuel. But the cold harsh truth is that most of us aren’t. We’re building successful companies that could still deliver a life-changing exit for us as founders… they just aren’t Airbnb, Facebook or Uber. And that’s fine!
“If you say, ‘Gosh, I could imagine growing this company to 5 million, 10 million, 20 million in recurring revenues’ in the modern software-as-a-service, recurring revenue business, you ought to be very circumspect about raising institutional capital. A fund with a professional investor and all their lawyers and so forth, they can really help. But it’s rocket fuel for rockets. You don’t need rocket fuel if you’re growing to $20 million and somebody’s gonna buy you for $100 million — which happens all the time, and we just don’t hear about it.”
One of the biggest mistakes early-stage founders make is building too much product before validating whether there’s real demand. Greg highlights that many founders think they’ve identified a problem but “don’t spend enough time asking ‘is this really THE problem?’”
He stresses the importance of validating ideas with real customers before committing resources to development.
“The biggest thing that founders look back and say — I wouldn’t have built so much product until I started selling and knew what customers wanted.”
We see this alllll the time (it’s also why we developed the Innovation Lab to truly stress test not only the central idea/product, but also to build a minimum lovable product that you can sell against).
You can waste years and millions of dollars building a great product… that doesn’t solve the problem that people actually need solved. Or you do solve a problem, but it’s not worth enough to your clients to charge them enough to build a business. It’s not THE problem your clients need solved.
“What’s lost is that it has to be amazing, not just a minimum viable or a minimum sellable,” Greg said.
“It has to be amazing enough for somebody to solve a serious enough problem that they’ll change their behavior, do something differently, which is really hard. In the old days, we used to talk about ‘it has to be 10x better than what they’re doing now’ (the manual way or the other software tool way).
“Founders are underestimating how amazing their software has to be to that customer to just sell it, keep them using it, and have them change from what they were doing before.”
For practical founders, success often comes from leveraging personal resources — whether it’s their time, savings, or even revenue from another business. As Greg explains, “It’s very common for software businesses…to trade their own profits, which they could have put in the bank…and invest them into building more software.”
Bootstrapping forces founders to focus on getting paying customers early, which Greg believes is crucial. “You should procrastinate funding the whole way and hurry up and sell something to prove it and get revenues coming in.”
This approach not only reduces the need for outside capital but also validates the product in the market, giving founders more options down the road.
Practical founders are quietly building businesses that have the potential to change industries — without the need for massive funding rounds or the pressure of billion-dollar expectations.
We’re proud to be part of a startup ecosystem that thrives below the radar, where success isn’t measured by unicorn status, but rather by sustainable growth and life-changing exits.
To repeat what Greg wisely said, “You shouldn’t raise outside funding until you know you can’t go another foot without it.”
For most software founders, the key to success isn’t VC funding, but proving value through real, paying customers. By focusing on solving the right problems, staying disciplined, and validating with the market early, you can build a profitable and impactful company — no rocket fuel required.
Jeff Francis is a veteran entrepreneur and founder of Dallas-based digital product studio ENO8. Jeff founded ENO8 to empower companies of all sizes to design, develop and deliver innovative, impactful digital products. With more than 18 years working with early-stage startups, Jeff has a passion for creating and growing new businesses from the ground up, and has honed a unique ability to assist companies with aligning their technology product initiatives with real business outcomes.
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