By Michael Gunther
You have probably heard the statement, ‘it takes money to make money.’ I actually think this statement is an oxymoron. I see many start-ups and individuals with great ideas who feel they only need ‘money’ to become the next big success. It is true that an owner must be willing to risk some money to get started, but when I hear discussions about the need for angel or venture capital investment prior to proving their concept works or generating any revenue, I become quite skeptical.
It’s as if the individual wants to avoid the financial risk, yet believes the idea will be a sure thing if others assume the risk instead. This sounds like a fool’s perception: someone who wants all of the reward but none of the risk. Why would anyone want to invest in you and your idea if you are not willing to put any skin into the game yourself?
I also discovered that when individuals receive money too early in the business-building process, the owners have a false sense of success. They spend money on the need to impress (marketing, people, furniture, etc.) without any regard to the need to conserve. A recent article by Anna Hensel, assistant editor of Inc. Magazine, quoted Mark Cuban on advice for start-ups: “You should do everything possible not to raise funds. Sweat equity is the best equity.” Basically, don’t give up value before you have actually worked hard to build value.
In addition, Fast Company estimated that at least 3 out of 4 VC funded start-ups fail. If you feel you need money to launch your business, are you trying to build a sustainable, profitable entity with true value? Or are you hoping that by gambling other people’s money you can skip solid business principles and aspire to be the lucky one who actually makes it to the big time?
There are few short cuts in life. This includes building a successful business. Sure, money is needed to grow and expand businesses if used properly. If you feel you need angel funding or VC funds, maybe you should evaluate what is truly missing from your business. Is it that you are struggling with garnering clients because of poor sales, marketing or even lack of need in the marketplace? If you feel you need money to hire people, instead look at the possibility of inspiring people to join your cause.
I’m not suggesting that money isn’t important, once you are established, to sustain growth. But, to build a business solely with outside funding may lead to poor strategy implementation. The graveyard of failed start-ups supports this concept.
Want a solid foundation for your business? There are no short cuts. It takes hard work, strategic thinking, consistent implementation and the ability to inspire a solid team of employees and partners to drive their effort in the right direction. Keep your equity, get to work and then see what you can create.