On September 24, 2024, one of my favourite international business magazines, The Economist, published a story titled “The Course of the Michelin Star,” shockingly detailing how restaurants awarded the honour are more likely to close.
Citing research published in the Strategic Management Journal, the publication highlighted several unforeseen issues that restaurants awarded a Michelin Star suddenly have to deal with, especially increased costs.
Once a restaurant receives the Michelin Star, it must incur extra, unexpected expenses on elaborate decorations and facelifts to match its new rating.
With the wide publicity that follows, it begins to attract a new set of high-profile guests, which in turn demands a new cadre of highly experienced chefs and other personnel. Meanwhile, suppliers are watching and suddenly increasing their rates, even as the restaurant must begin to include more esoteric ingredients in its meals to satisfy the refined palates of its wealthy clientele. All these add immense pressure, causing once-thriving restaurants to struggle after earning the Michelin Star.
As a startup founder waiting to raise funding so you can anchor your PR homerun on it, you may risk the same fate as Michelin Star restaurants. Ever wonder why several startups that enjoy massive publicity after raising funding begin to struggle shortly afterward, and eventually shut down?
One reason is that their operational costs suddenly skyrocket after announcing the raise. Your suppliers, regulators, employees, and even your mechanic will simply multiply the amount announced by the prevailing exchange rate and start billing you accordingly. You’ll begin to receive all manner of pitches and proposals, each claiming to magically help your growth, and before you know it, you’ve spent 30% of that funding on branding.
Of course, I understand the place of market signaling with such announcements, especially those early days when such announcements boosted credibility and confidence in the ecosystem. But the ecosystem has grown past that nascent stage, and I believe that announcing most pre-seed and seed raises is completely unnecessary and, frankly, tactless.
That said, I still appreciate a Series A announcement, which signals intense growth and heralds a follow-on round. In any case, at that level, most startups are likely to have developed a solid structure that streamlines operational costs and are able to manage the pressure that publicity brings.
As a founder, don’t wait until you’ve raised funding before implementing PR activities. There are a million and one ways to promote your startup without announcing a funding round. This was the focus of my latest book, Scrappy Strategies: PR for Startups, where I discussed no fewer than 10 strategies a startup can use to promote its activities without waiting for a funding round to provide a PR opportunity. I assure you, fundraising is not one of the strategies I discussed. It’s already over-flogged.
Sometimes, the quiet startups grow faster, not because they have less money, but because they have less noise.
- Jonah Solomon is a PR professional with a proven track record of delivering successful strategies for businesses focused in the finance and technology sectors across Africa.
