This section expands upon a principle I shared near the end of Chap-ter Five, one that directly impacts your available runway and deservesemphasis. Human beings have always been poor predictors of the future. Highly passionate entrepreneurs represent a special case of thisphenomenon, routinely favoring rose-colored views of the new ven-ture path, especially when it comes to estimating capital needs. Oneof the simplest, most important strategies for ensuring that you makeit through your earliest phase is to secure more than adequate fund-ing to get your venture to the point where it is self-sustaining.
Even though J.C. Faulkner entered his startup launch with ahighly refined understanding of his target market and a well-tunedbusiness plan, he took no chances when it came to funding. “My phi-losophy,” he says, “was that you should raise two-and-a-half timesmore money than you think you’ll ever need in the worst case sce-nario. This was based on great advice from my dad, who saw a lot ofbusinesses succeed and fail as an accountant.”
Accordingly, the D1business plan projected that the company would spend about $800,000 before becoming profitable, so J.C. secured access to $2.5 million be-fore taking his idea to market. About one-fourth of this was in the formof his own career savings, while some money came from private in-vestors (friends and business associates who trusted J.C. and knew histrack record in the industry) and the rest came from loans and linesof credit, none of which he tapped.
Although having access to these funds cost him more in terms ofinterest and ownership, J.C. considered it well worth the price. “It waslike paying an insurance premium. It cost a bit more but provided asafety net. Money was one less thing I had to worry about,” he says.“A lot of potentially good companies have died because they ran outof money. I looked at the things that could kill us, and I could controlthis one.” Moreover, he avoided the constraints that often come withoutside investors by setting clear expectations with his investor group.He promised them a healthy return on their money on the conditionthat they would have no control over how he developed and managedthe venture.
Some entrepreneurs and academics warn against the dangers ofoverfunding an early-stage business, arguing that too much capitalcan cause an entrepreneur to lose touch with market forces or becomeinflexible or undisciplined. My experience is that these dangers op-erate independently of a venture’s funding situation, biting poorly funded and well-funded businesses alike, and they are driven mostlyby factors such as the founder’s preparation, personality, and expertise.In J.C. Faulkner’s case, the extra funding heightened his ability to focusand respond intelligently to market forces. “The fact that we had moremoney than we needed meant that we could go faster if we wanted,or we could slow things down,” he said, “depending on what the mar-kets were doing.
Bob Tucker, J.C. Faulkner’s attorney, believes that the principleof ample funding generalizes well to the many business owners withwhom he has worked over the years. “I have advised dozens of differ-ent businesses to go borrow money,” he says. “If your business planindicates you’re going to need a good bit of money down the road, goright now, even if it costs you more in interest to do so, because youdon’t know what lies between here and there. It’s worth having thepowder in the keg, because the consequence of not borrowing nowmay be that your business plan won’t get a chance because of futuredevelopments of some kind.