When starting or building a business, it’s true when they say there’s more to life than funding. You can often get things up and running by bootstrapping with your finances. But at some point you’re going to need more money. It’s an issue almost every business in the UAE faces. The reality is that if you want to take your company to the next level, a cash investment will likely be the catalyst. Here are a few reasons why.
1. It lets you overcome the red queen effect
Ever read Lewis Carroll’s Through the Looking-Glass? If you have, you may remember the Red Queen, who even though she keeps running still never goes anywhere. As she explains:
“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”.
For many businesses, a lack of funding can mean the same thing – the company starts to tread water. Even worse you start to go backwards, for reasons we’ll cover in a bit.
In 2019, around 1 in 5 small to medium enterprises (SMEs) sort funding of some kind. When asked why, around a third (37%) of them admitted needing the extra finance for working capital or cashflow. In other words, these businesses needed money to just keep their business going – to keep standing still.
But many of the others wanted the funding to try and break free of the Red Queen effect. When you add them up, around 45% of SMEs were looking for funding to grow the business in some way.
2. It lets you act fast
Another thing we can take from the Red Queen analogy is that as businesses we’re in a race. A race to be first to market. A race to secure customers. A race to secure funding. This means we need money available to accelerate at the perfect moment.
If we look back at that 45% of SMEs who were looking for funding to grow their company, just less than a third needed the cash to purchase fixed assets – such as machinery or technology to help them do more or better work. Without that money, those companies can’t access new tools, buy new vehicles, purchase better computer hardware or software, or even ramp up their inventory of products. This means they can’t increase production or offer improved services, and so can’t take on new contracts or employ more people.
With no funding, these firms have no way to push their foot on gas when the chance to go big arises. Instead they’re left behind, which brings us to our third reason.
3. It helps you to hold off copycats
Let’s say you’ve just started a company. You’ve already sunk a lot of your own money into innovating a new product. Say a new app or piece of technology. But the inevitable delays and rising costs mean you have very little money left for marketing. Suddenly a copycat company comes along, sweeps in with modified idea and launches big. Nightmare.
This is exactly what happened to Wesabe. Remember them? Probably not. In 2006, Marc Hedlund launched a website to help people manage their personal finances. As Marc admits, “Even before we launched, we heard about other people working on similar ideas… None of them really seemed to get very far, though, and we were considered the leader in online personal finance”. That is until Mint.com came along 10 months later. Within a year, Wesabe was out of business.
The reality is that if your business is successful someone is going to copy it. This is guaranteed. But you shouldn’t see this risk as a bad thing. Competition is good. It drives innovation and also importantly drives the market to grow. A bigger market is essential for your expanding business. You just need to make sure you have the funds in place to take advantage of the situation.
4. It allows you to keep evolving
Nothing is forever. Just as Kodak or Nintendo. So no matter how good your idea or company product is right now, the competition will eventually better it. So why not better your own product instead?
Take Netflix as a prime example. In 2002, it was mailing around 190,000 DVDs to customers every day. It was successful. A market leader, it could have sat back, but it didn’t. Instead it predicted that video streaming was the future. And it was right. Again it could have rested on its laurels. Yet, it understood that owning the content it streamed would help to beat off competition. So it began investing in its own TV series and films too.
Being like Netfilx requires a number of things. Bravery, for a start. But also access to investment to keep researching and developing. If you’re not able to invest in your future, your company may not have one. No matter how good things are right now.
Selecting the right funding to go big
If your company is ready for its next step, there are plenty of financing options out there. But before you go looking, have a clear plan in place. Define how much investment you need, for how long, and what risk you’re prepared to take on board. Do you want debt (where the finance is provided upfront with repayment costs) or equity (where the finance is provided in return for a share of your business)?
In terms of funding options you could consider:
- Venture capitalists
- Angel investors
- Loans and overdrafts
- Asset or invoice finance
- Mezzanine finances
If you’re a startup we have more advice for you in a separate article. But ultimately, it’s never been easier to secure funding, especially in the UAE. So if you want to take your business to the next level, then the time to look at investment is now.