Sheltowee Outpost

Maybe It's Not Just About the Money!

Maybe It's Not Just About the Money!

Aug 04 2014

Startups spend an inordinate amount of time chasing money.  In many cases this can become an all-consuming effort.  I know that I have found myself suffering from the "if I only had the money to do x".  Parting investors from their money can be very difficult (as it should be).  But I like to challenge startups with what can you do with what you have?  We often think that money is a cure all.  Trust me, as someone with significant experience, it is not.  In some cases the worst thing that could happen to a startup is that they easily get the funding they are seeking.

Below is a video I like to show.  This is someone who got the money.  He had the funds he needed to get his concept off the ground.  The money was not what he needed.  What he needed was someone with experience to help him get his project off the ground.  Often times startups crash and burn.  You often hear that it was because they were "underfunded", but I believe that this is the easiest excuse to come up with.  I have used it myself.  I believe that more often than not it is because they are "under experienced". 

 

It was Will Rogers that said, "Good judgment comes with experience and experience comes from bad judgment".  This is so true.  I like to reference the Navy Fighter Weapons School (Top Gun school).  It was established because it became apparent during the Vietnam war that the survival rate for fighter pilots went up dramatically after their first five missions.  They then became "experienced" pilots and had a much better chance of survival.  The Top Gun school was established to try to provide those first five missions in a highly realistic training scenario as opposed to a true combat mission.  This indeed worked.  Why did it work?  There was the simulation and getting those mistakes behind them, but there was also the instructors who had been there and done it.  These instructors were the key to the success of the Top Gun school.  They used their experience (past bad judgment) to help new pilots gain experience. 

Now let's think of the capital that you need for your startup as the jet and fuel that is required to get you through a combat mission.  Once you get that you can easily fly into trouble.  And this is on what most startups are focused.  I want to encourage you to seek out something that is harder to find than money, but is much more valuable.  Find a good mentor.  Find that person who has been through those five combat missions and can help you steer your startup in the right direction. 

Why it Is Harder to Find a Mentor Than to Find Cash

It is one thing to ask someone to invest $250,000 in your business and another thing to ask someone to invest their time.  Remember that time is the great equalizer.  Whether you have $100 in the bank, or whether you have a billion dollars in the bank, we all get roughly the same amount of time on this planet.  So when you ask someone for their time, you may be asking for much more than the amount of cash you are seeking.  But the time you can get from an experienced entrepreneur  could be much, much more valuable to you than the cash for which you are seeking.

Improvisation

The other thing I want you to consider is to improvise.  What can you do with the limited funds you have.  And don't say I don't have ANY money for my startup.  Do you have subscription television service?  Then you have money you could spend on your startup.  Cancel cable and now you have at least $50 per month to spend on your startup.  With the tools that are available today, it is amazing what you can accomplish with very little money.  You can look like a fortune 500 company and only spend a few hundred dollars. 

Learn How to Use Equity to Your Benefit

There are many who would disagree, but one thing that you can use early on instead of cash is equity.  Form your LLC, and use the equity in the LLC to get people to help you.  They may not be able to invest cash, but perhaps there is an engineer who would be willing to do some work for you, or a graphic designer.  You can provide them with equity in the company in return for helping out.  I will go into more details on this in a later post.

The Challenge

Money is obviously required to get a business off the ground.  But perhaps if you approach the concept as an entrepreneur, you can drastically reduce the amount of money you think you need.  A key to being a successful entrepreneur is that for every dollar you invest, you garner much more value in your equity.  So if you can invest $2,500 and bring your idea to a place where it is worth $500,000 or even $1,000,000, you are way ahead of the game.  And the closer your product is to the market, the higher the valuation you can garner when, and if, you have to raise money.

 

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