Central Perk: Seth's Blog : The struggle to raise money

luni, 1 august 2016

Seth's Blog : The struggle to raise money

The struggle to raise money

When your small business is struggling, the thought of raising money feels like a life preserver.

That possible infusion of cash is a beacon of hope, the thing you can work on tirelessly. It's the one thing that appears as though it will make everything better.

Careful. It's often a detour, a distraction that won't pan out at the very same time it takes your eye off the real issues.

The problem starts with this: Few people will tell you to stop trying to raise money. They'll encourage you to polish your business plan, make more pitches, add more rigor, dream bigger.

Add to this that it's essentially impossible to build a 1000x company, but those are the ones that get all the hype and the ones that investors crave. So you're comparing yourself to something that's quite elusive.

And finally, as you get deeper and deeper into the quest, there are individuals and institutions that will happily take advantage of you, requiring you to personally guarantee debt, to give up control, to turn your dream project into something you never envisioned.

The reason for this money trap is that so many small-business owners confuse raising money for expenses with raising money to build an asset. This is worth understanding.

If you can say, "I will spend this money on X, and X will make Y happen, and Y will pay off handsomely," then a professional investor ought to be open to hearing that story.

But the things to spend money on are a significant real estate presence, machines, patents, a permanent, expensive brand. The entrepreneur who spends this money does it with enthusiasm, because she's buying things that are going to grow in value, fast.

This is the painting contractor who realizes that a high-powered industrial paint booth will make him the only guy in town who can do a certain kind of job. Or the fast food impresario who asserts that opening ten restaurants in one town in one year will give her the footprint to be more efficient and profitable.

But that's not the way most small business folks are wired.

We're wired to delight our customers, charge for what we do, and then spend some of that money to do it again.

If that sounds like you, pretend that it's not even possible to raise money from investors. Take the option off the table (where it isn't, really).

Instead, spend that energy and that passion and that focus to raise money from your customers. To delight more customers often enough that they happily pay you for what you can do for them. And then repeat. And again.

It's not a life preserver. Not at all. It's a stepwise path, a ramp from here to there, a process with no guru, no miracle, no signing bonus. It's merely the work.

The thing you signed up for in the first place.