HBR IdeaCast

Why Entrepreneurs Don't Need Venture Capital to Scale

Tue Jun 27 2023

entrepreneurshipventure capitalprofitabilitysustainable businessButcherBox

Description

Building a business without venture capital is possible, as demonstrated by ButcherBox. The company started with a small amount of capital and has never taken money from venture capitalists. They focused on profitability from the beginning and utilized strategies like Kickstarter campaigns and influencer partnerships. By prioritizing profitability and staying true to their values, ButcherBox has grown into a multi-hundred million dollar business without outside funding. This approach challenges the traditional reliance on venture capital and highlights the importance of building profitable businesses.

Insights

Building a Business Without Venture Capital

ButcherBox is a $600 million company that was founded with just $10,000 in capital and has never taken money from venture capitalists.

Starting ButcherBox: A Different Approach

$215,000 was raised from a Kickstarter campaign, resulting in 400 monthly subscribers.

Running a Profitable Business Without External Investors

The lack of external investors allows the company to focus on running a profitable business and maintain its mission.

Scaling and Maintaining Profitability

By shutting off marketing for six months, they achieved remarkable profitability in that year.

Building a Multi-Million Dollar Business Without Outside Money

The company has grown without outside money and is a multi-hundred million dollar business.

Chapters

Building a Business Without Venture Capital
Starting ButcherBox: A Different Approach
Running a Profitable Business Without External Investors
Scaling and Maintaining Profitability
Building a Multi-Million Dollar Business Without Outside Money

Summary

Transcript

Building a Business Without Venture Capital

00:01 - 07:26

ButcherBox is a $600 million company that was founded with just $10,000 in capital and has never taken money from venture capitalists.
The CEO of ButcherBox, Mike Salguero, wanted to build a business without raising venture capital after experiencing the negative effects of VC funding in his previous company.
Venture capital can lead to loss of control and conflicting incentives between the company and investors.
Mike believes that entrepreneurship doesn't always have to involve raising money and that it's possible to build a robust business without venture capital.

Starting ButcherBox: A Different Approach

07:00 - 14:00

The original plan for the company was to have a thousand subscribers and make $20,000 in profit.
The service offered was a monthly box of grass-fed beef delivered to your door.
$215,000 was raised from a Kickstarter campaign, resulting in 400 monthly subscribers.
They reached out to influencers in the paleo, keto, and elimination diet space for promotion.
Instead of paying upfront, they offered influencers a residual commission for every customer they referred.
They focused on making profit from the first box shipped out to avoid raising money.
Despite the popularity of meal delivery companies raising venture capital, they chose not to go down that path.

Running a Profitable Business Without External Investors

13:41 - 20:46

The lack of external investors allows the company to focus on running a profitable business and maintain its mission.
The company sells meat that is raised better and refuses to cheapen the quality of their products.
Venture capital can be beneficial for industries that require significant upfront investment, but it may not be necessary for all businesses.
Support and services from organizations like Google and first round capital were helpful in the early stages of entrepreneurship.
Shark Tank and media often emphasize raising money rather than building profitable businesses.
The company achieved rapid growth through influencer strategies and leveraging Facebook videos.
Financing growth without raising money requires a different approach to thinking about finances.

Scaling and Maintaining Profitability

20:25 - 27:09

At that point, they had to bleed into box one profitable and box two or three profitable.
They financed the expansion by buying customers on credit terms with Facebook and using credit cards for payment.
The focus was on making the product more profitable by negotiating better deals with suppliers and reducing costs.
During the pandemic, they anticipated factory shutdowns and stocked up on inventory.
There was a surge in demand during the pandemic, leading to thousands of signups per week.
They chose to prioritize existing members over new customers during the high demand period.
The decision to prioritize members was appreciated by customers and helped maintain loyalty.
By shutting off marketing for six months, they achieved remarkable profitability in that year.

Building a Multi-Million Dollar Business Without Outside Money

26:44 - 31:52

The company has grown without outside money and is a multi-hundred million dollar business.
The company focuses on its customers and stays true to its values.
Employees are taken care of.
The company operates as an internet subscription business.
Capitalism needs to embrace taking care of employees, the environment, and customers.
People now care more about the brands they consume and what those brands stand for.
Consumers want their dollars spent in alignment with their values.
Companies need to catch up with how customers make buying decisions based on their values.
The mission is not only to transform the meat industry but also to transform capitalism and how companies are built.
Entrepreneurs and venture capitalists can learn from this approach.
Some venture capitalists are shifting their focus towards sustainable companies with free cash flow and profit rather than just valuation increases through funding rounds.