For many early stage businesses, the word “funding” immediately brings to mind venture capital or bank loans. However, Jeff Fox suggests a more holistic approach called “leading your capital”. This means aligning your human capital, your financial capital, and the revenue provided by your customers to build a business model that actually rewards both your employees and your investors.

When you are in the zero to $10 million revenue range, funding isn’t just about the cash in your bank account; it’s about how you design the business to meet demand while maintaining your “North Star” of customer value.

Funding through customer revenue

The most important funding strategy for any early stage business is customer revenue. Jeff Fox points out that “customers pay the rent”. While it’s tempting to look for outside investors early on, the revenue you get from delivering real value to customers is the healthiest way to fuel your growth.

Getting revenue is the lifeblood of the company, but as you scale, you have to grow into a skill where you recognize that some revenue is better than others. By focusing on high-quality revenue from customers who truly benefit from your service, you create a repeatable model that eventually makes you much more attractive to outside partners. You can increase revenue by simplifying your model to ensure your internal operations aren’t eating up the capital you’re working so hard to generate.

Choosing partners who provide “aligned truth”

If you do decide to bring in outside capital, the strategy should be to find partners who offer more than just money. You want partners who bring “aligned insights” and coaching based on actual operating experience.

A good capital partner helps you see the boundary conditions of your business. They provide a level of accountability that forces you to look at your financial metrics and systems objectively. This relationship should be built on trust and a shared commitment to customer value rather than just a desire to “run the business with a spreadsheet”. When you find this alignment, you can move from founder to CEO with the confidence that your partners are helping you steer the ship in the right direction.

Allocating capital to build systems

One of the biggest mistakes early stage leaders make is failing to allocate enough capital toward the systems and processes that allow for scale. In the $5 million to $10 million range, you must invest in the “instrumentation” of your business.

This means spending money on technology and people that provide you with actionable data and metrics. This investment is what allows you to move from “brute force” leadership to a model where decision-making is distributed throughout the organization. Leading your capital effectively means ensuring that your financial resources are building a foundation that supports future growth without creating a crisis every time you add a new customer.

Related resources:

• The operator’s manual for scaling: what it takes to lead a $5M business to $100M
• How to move from founder to CEO without losing control
• Identifying what small business investors look for in a partner
• Increasing revenue by simplifying your business model
• Pitching to investors with a focus on customer value

Listen to the full podcast episode here.