Here's How to Build a Successful Tech Startup Without Taking a Dime

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Growing up as the oldest of five kids to a single mother, I was acutely aware I didn’t have the same financial privileges my friends in our middle-class neighborhood had. I learned early on that if I wanted success, I was going to have to create it.

So I did — at the age of 15, I got a lucky break. A friend’s father taught me about his business: He refurbished used cell phones and sold them in Latin America for a profit. Judging by his yacht and private plane, business was good.

He made a deal with me: I would bring in old phones and he would buy them for the same price he gave his Fortune 500 vendors like AT&T and T-Mobile. Soon, I was purchasing cell phones from local high schoolers and pawn shops and reselling them for profit. His mentorship taught me how to run a profitable business from the start.

Taking on outside capital has its merits. It can open doors and accelerate your company’s operations and growth, but it also comes with setbacks. Founders often have less autonomy and in a down economy, valuations are lower, investors are more discerning and terms are less favorable.

As someone who’s built and scaled a global technology company that competes with the likes of Apple, Samsung and Microsoft, I’ve opted not to take outside capital. Here are three tips I’ve learned along the way.

Stay as small as you can for as long as you can

For more than a decade, tech companies have operated with a grow-at-all-cost mentality. Low interest rates and easy funding have made operating without a profit the norm.

Bloated budgets have fooled many founders into scaling too quickly and hiring unsustainably. This in turn has driven up the cost of domestic labor, causing many tech companies to outsource talent from overseas.

When my company did its first $50 million in revenue, we had seven employees. Admittedly, our business is unique — we sell at a large scale to select clients, which doesn’t require the same headcount as other businesses. But when you don’t take VC funding, you learn to keep operations lean and test your offerings to ensure market fit before scaling.

Before putting resources behind a new product or service, I look for key indicators: Are clients willing to pay for it? Can we deliver results with our existing resources? Does it align with our overall business strategy? If the answer is yes, then we begin to service it slowly, with intention.

Get customers to pay upfront by building trust

In tech, there’s a tendency to build a product and then attempt to sell it — but I’ve learned to do the opposite. In our business, we meet with clients first to get clear on what problems they are looking to solve. Then, we reverse engineer a custom solution for them.

When you don’t have outside capital to fall back on, there’s more incentive to get money upfront to fund the build-out of a product or service. Of course, it can be hard to get that first client.

One of the best ways to win a client is to build trust by understanding their pain points and anticipating their needs. For example, a few years ago we were hired by a large healthcare organization to create a patient-centered mobile device for hospitals.

We listened to their needs and pitched a solution that won us the business. However, at the time, they asserted they didn’t need cellular connectivity. Knowing outages happen even with secure Wi-Fi connections, and the cost to include it was minimal, we convinced them it was worth the extra spend.

Not long after we delivered the devices, Covid-19 hit. People were no longer able to go into hospitals and healthcare was forced to go mobile. That simple anticipation of a need helped our client grow and meet life-threatening demands throughout a major crisis. You can bet we earned credibility and trust in that transaction.

A recent survey by PWC showed 9 out of 10 customers said they would buy from a company that gained their trust. In contrast, 71% said they would buy less if the trust was lost.

It’s not always possible to get clients to pay upfront. But when you listen to their needs and earn credibility and trust, you’re better positioned to do so.

The ability to pivot can make or break a business

In 2018, I made a conscious decision to pivot our company direction. At the time we were focused on consumer device sales. Our revenue was a healthy eight figures, but it was a hard space to compete in.

After doing some research and testing, I was convinced we could take the skills we’d developed for consumer products and apply them to the enterprise space with more success. However, it would require taking a temporary revenue loss as we shifted our market strategy and built up our reputation with enterprise clients.

Had we taken on outside capital, I’m not convinced this pivot would’ve happened. It can be hard to sway a board of investors into taking on unnecessary financial risk. For us, it was a painful shift — but because we were nimble and had the autonomy to follow through, the risk paid off and our company is now in a much stronger position.

Growing a business isn’t for the faint of heart. For me, it involved a lot of sleepless nights (and ramen) as I worked through the mental fatigue that comes with navigating the highs and lows.

Sometimes taking on investment makes sense; it can open up doors and offer third-party credibility. But it can also offer a false sense of financial security — one that leads to unstable growth.

When you focus on building a company at the pace of demand and scaling smartly, you’ll be better positioned to weather any economic storm, whether you take on outside funding or not.

This article is from Entrepreneur.com