Re-Investment

In this post Fred Wilson goes on to explain that a company should first scale & gather traction on seed funding before it goes after venture round funding. Whilst WooThemes has never taken any outside funding (we’ve bootstrapped from the beginning), Fred’s post did make me think twice about when it’s a good idea to re-invest earnings into a company.

So with WooThemes, we’ve been steadily gained traction and grown our revenues & user base since we started out, without having to really re-invest those revenues (in one significant decision) back into the business. Instead we have been very lucky in that we have a very cash flow positive business and we are thus able to cover all immediate expenditures (capital included) from those revenues.

But similarly to Squarespace (who just announced their first outside funding of $38.5m in 7 years), I can see merit in re-investing funds in a rapid growth campaign / strategy.

I think when things are going well and a business is growing steadily, it is easy to start applying revenues to optimize a business just enough to fuel that steady growth rate. But if you’re keen to ramp things up quickly & significantly, then a significant re-investment in that strategy is probably required.

Even whilst writing this post though, I’m personally at odds about how I see this strategy, as I’ve never been the kind of entrepreneur that simply wanted to throw money at something; much less a growth strategy. Instead I believe in organic growth, innovation, great ideas & clever marketing solutions.

What do you think?