Bootstrapping ftw.
Dick Costolo, co-founder of FeedBurner, describes a startup as the process of going down lots of dark alleys only to find that they are dead ends. Dick describes the art of a successful deal as figuring out they are dead ends quickly and trying another and another until you find the one paved with gold.
So it?s pretty clear to me that most venture backed investments don?t fail because the business plan was flawed. In my experience at least 2/3 of all business plans we back are flawed.
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
I should also say that for businesses that don?t have the benefit of venture capital backing, the reverse is probably true. Almost certainly non-venture backed businesses will not have the ability to get too big too fast. They will mostly fail because they have the wrong business plan and they don?t have the wherewithal to survive for the period of time it takes to figure out the correct one.
Regardless of whether you have taken venture capital or not, capital efficiency and bootstrapping are critical values. You must keep your burn rate low until you can show without a shadow of a doubt that you have a business model that works, can be operated profitably and is ready to be scaled. Then and only then should you step on the gas.