When you’re building a startup in Birmingham, Alabama—or any other non-coastal city—capital is a luxury, not a prerequisite. While the debate about the merits of this reality could go on indefinitely, I believe it’s more productive to accept it and build accordingly. Attempting to apply Silicon Valley economics to a Birmingham startup is simply unrealistic. The better approach is to embrace our unique environment and leverage it to our advantage. So, what does this mean in practice?
The Basics: Cash is King
Before anything else, you need cash. Cash to pay your employees, your suppliers, the power company, and to cover all the other expenses that come with building your project. The question is, how do you get this cash?
There are three primary ways to bring capital into your company:
1. Take on Investment Capital
2. Generate Revenue
3. Diligence Around Your Financing Plan
Distinguishing Between Reality and Hope
A critical aspect of building a business in a capital-efficient world is understanding the difference between what is actual and what is hoped for. Founders, by nature, are hopeful; they need to be. To create something new and transformative, they must see a world that doesn’t yet exist and work tirelessly to bring it to life. However, this hopeful nature can sometimes blur the line between realistic expectations and aspirational goals.
As investors and advisors, one of First Avenue’s key roles is to help founders navigate this distinction. We try to dig deep into what is tangible and achievable versus what remains in the realm of hopeful projection. This approach will shape how we evaluate and support companies moving forward. Our main focus is what gets a company to the next level—typically, or at least ideally, Series A Funding—but in Birmingham, the landscape for securing Series A funding is shifting. The easy access to capital that some tech companies in coastal hubs enjoy does not exist here. We must acknowledge this reality and adjust our strategies accordingly. In this environment, founders need to be prepared to bootstrap longer, demonstrate solid revenue models earlier, and show a clear path to profitability. We have to not just be as good as a coastal startup; we have to be better.
This requires founders to religiously, relentlessly, and resiliently push towards excellence. An excellent team, sales strategy, and operation coupled with a differentiation and a defensible strategy is key. In his book The Hard Thing About Hard Things, Ben Horowitz devotes a chapter to the concept of wartime versus peacetime leadership. As I reflect on recent business advice, particularly around time management (as seen in Cal Newport’s latest work), team management, and organizational culture, I keep returning to this peacetime/wartime analogy.
Companies must be singularly focused on getting to the next level. Most business books assume a certain level of comfort, time, and resources—conditions that are often far from the reality of startup life. While these methods may be effective in a time where capital is more freely flowing, startups now are in a constant state of fighting for their existence, focused on survival, grinding to increase ARR (Annual Recurring Revenue), and meeting aggressive targets.
In peacetime, organizations can afford to focus on team-building exercises and leisurely activities like foosball and beer at 4 PM. But in wartime, these activities can seem frivolous when the company’s survival is at stake. The challenge for founders is finding a balance between the relentless drive to achieve immediate results and maintaining a broader mission-driven focus.
Managing through these periods of intense pressure requires a delicate balance. Companies can’t remain in wartime mode indefinitely, as sustained pressure often leads to burnout and attrition. I also think that the companies who are run by generals expecting privates to leap at a drop of hat also fail to bring a team together and thus fail overall. Yet, excessive peacetime activities can lead to complacency and ultimately, failure. So, when we look at investing in companies, we are looking at:
- Clarity of purpose: can the mission and goals be succinctly defined? What is the financial goal for the next 6-24 months? Is that a Series A? If so, what do you need to do to be investable? Who are your target funders, and what are they looking for? If something other than a Series A is the goal, what is it, is it achievable, and are all of your stakeholders aboard?
- Focus on executing on that purpose: is there a business plan that can be executed to get to that level? Experience and capability are key—does your team have it? Be realistic here. What other team members do you need?
- Can the founders or leadership execute on that plan? Are you up for the challenge? Ten years is a reasonable expectation from start to finish. Can you and your family handle that?