Entrepreneurship 101
In The Beginning
There are many reasons why someone desires to be an entrepreneur. There is, however, a commonality most often found among entrepreneurs… the entrepreneurial spirit. This trait is the driving force behind why people start their own business. It is a strong desire to create, coupled with a vision to succeed.
Various life experiences combined with someone’s own personal drive and vision can set the wheels in motion when considering livelihood as an entrepreneur. Undeniably, some of the biggest and best companies started in garages and basements by people with a vision to create. So what happens once the vision becomes a reality and you have a bona fide business? Hopefully, you have done all the preparation needed to get to this point and have a plan of action to keep your business heading in the right direction.
All too often, people with great ideas begin their entrepreneurial journey without having performed the due diligence needed on the front end. The business plan needs to be rock solid, your finances stable to sustain you, and your determination and endurance to keep moving the needle forward, fully charged. Understanding that a flexible mindset will help you make adjustments, as needed, is important and they shouldn’t be looked upon as setbacks.
In regards to finances, it’s important to consider options for your business throughout its lifespan. What does your business plan outline for the present, near and far future in regards to growth and what are the finances you’ll need to keep your business buoyant? When will you need to hire people, if at all? What type of capital purchases will be needed and is it better to buy versus lease? How will you anticipate and off-set your operating costs? There are many more questions you need to consider, but inevitably it will always come back to finances. For business owners seeking financial options, there are outside sources that may be beneficial, but understand these sources come with other types of “hidden costs” that may not be appealing, and I’ll address that later in this article.
Playing The Money Game
You need to be aware that obtaining investor money is not an easy task and one that many entrepreneurs will be denied due to the number of available investment opportunities. Generally, early start-ups are considered the least desirable by capital investors but can be attractive to an angel investor, who generally invests smaller amounts of money knowing there is a greater risk. Capital investors prefer to invest in businesses that have a track record of success and longevity thus increasing the odds of a big payout on their investment.
Is it wrong to seek out venture capital investments? Some people might say, it’s just the good ole’ American way of doing business. In reality, it provides opportunities for investors seeking great ideas, products and services that have come from the sweat equity of entrepreneurs. On the other-hand there are individuals who enter into entrepreneurship and start businesses with the intention of being invested in or purchased outright.
Serial entrepreneurs like Reid Hoffman make starting, quickly growing and acquiring large infusions of capital investments, their actual business model. I liken them to people who buy and flip houses. The emotional attachment to the property is in knowing there is no attachment beyond how attractive it appears to outside investors or buyers. This doesn’t mean the serial entrepreneur doesn’t care about his business; it simply means the end-goal is not for longevity.
For some entrepreneurs, an infusion of money from an outside source comes with a side of other, more significant changes. With venture capital comes the attractive infusion of money that not only helps relieve entrepreneurs of the financial burden of managing a business, but also helps divest them from the emotional attachment and control of the business they started.
These business owners have in essence agreed to take on partners with a lot of power and influence over how the business will be managed. The investors will assume the position of stakeholder and to whom the business owner will report. Since the goal of capital investors is to purchase at a price that leaves a great margin for profitability and opportunity to sell at a higher price down the road, the actions and decisions may not align between the investors and the business owner. This is a mindset business owners need to understand and adjust to quickly if they want the money. If relinquishing control of one’s business is something a person can mentally manage, then the transaction shouldn’t present any problems with the repositioning of authority. However, it will, likely, change many things about the company’s business model. Rest assured, venture capitalism is always this: self-serving to the investors.
At The End Of The Day
I don’t profess to tell other companies how to conduct business, however for my company inviting in outside investors has never been an option. I choose to work with people who believe in the mission, vision, values and culture we’ve set forth as a company. Capital investors are more concerned with how their exit plan will manifest and not focused on the efficacy of the organization as a customer engagement machine.
I like to believe that “good guys” can finish first in business. Good business people are those who are not self-serving, but are people who understand who it is that they serve, and they serve them well. This understanding is important for any business owner to know, because it puts motivation into context and gets priorities straight. Everybody wins in this situation. Companies make money. Consumers get what they want, and hopefully return to buy more. Companies that conduct business with their customers in mind, will in turn, be top-of-mind to their customers.
Knowing yourself and what motivates you, understanding what it will take to build your business and who you want to help make your organization successful are considerations never to be taken lightly.
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