In this series of Bear Essentials, The Business Survival Tips, I discuss the company GoPro and how they were able to build a Niche Marketing Strategy that allowed them to become a big player in a highly competitive market.
I don’t know a lot of things. I do, however know a thing or two about how to raise money for a business the wrong way as I have operated in the middle of the table on quite a few occasions. If you are wondering where the middle of the table is that a fair question. The middle of the table is where you are putting two parties together and you are acting as a conduit to make the deal happen. A deal-broker to some degree if you want to call it that.
I have also had five businesses over the last twenty-one years in which I was on the side of the table that was in search of the investment (the asking side)… and I have made countless mistakes during that process. This is one of the main reasons why Gary and I started this blog, as we wanted to provide advice for entrepreneurs who may not know where to go or what to do. Though we eventually were able to secure the investments we were looking for, it was not without some very hard lessons learned along the way. It is also important to note that probably the biggest mistakes is not understanding the difference between finance and capital, which is very important to know when looking to raise money for a business .
The following are 5 prevalent mistakes entrepreneurs make when they raise money for a business the wrong way.
The most important thing to understand is that investors do not fund ideas. Many entrepreneurs make the mistake of thinking that they will get their company funded on their idea alone. This is one of the biggest misconceptions entrepreneurs have when raising money for a business. Funding startups on Ideas alone are very rarely funded without various other factors taking place that makes the company attractive for investment.
Trying to get a company funded with no revenue is extremely difficult. One reason is that if an entrepreneur’s idea is worth their salt, the investor wants to see them gather revenue to show proof of concept and market viability. They also want to see that the entrepreneur is not looking for them to do all the work.
Many entrepreneurs don’t understand the concept that 20% of something is worth a heck of a lot more than 100% of nothing. Often times, offering higher equity to a potential investor or strategic partner is better, as it creates more of a vested interest in the company succeeding when the investor has more equity.
Another one of the common mistakes in business that many entrepreneurs make when trying to raise money for a business is not taking the many other things that are relevant in order to make a business succeed. Entrepreneurs will look at the cash alone when the real secret to the success of most businesses lies in the value of strategic partnerships. Money alone quite often is not enough. In a strategic partnership, the entrepreneur uses the resources and expertise of their strategic partner to leverage their strength far greater than any amount of cash can cover.
Many investors and VC’s will tell entrepreneurs that the product or service is too early in development for them. One example is a technology company that doesn’t have the technology prototype ready and is looking for the investor to fund the prototype. The problem is there is far too much risk involved. I was in the middle of that one about a year ago and it was not fun. Another example is trying to sell a fashion brand without making samples. These two examples are great places for pursuing startup capital or seed funding. Seed funding will allow an entrepreneur to get the necessary things done in order to put themselves in a position suitable for investment.
I have seen the above five mistakes first-hand, some that I made myself, and the rest (like I said) sitting in the middle of the table. I think that if you can avoid these mistakes you will greatly increase your chances of succeeding in securing the investment you are looking for.
IMPORTANT NOTE: If you want to explore a more in depth look at starting a business and raising money, Gary and I have shot 4 FREE product training videos that we have created that provides a much deeper and comprehensive look into starting a business. To visit that section, click here now.
I am horrible at more things than I can count. When I was about 10 years old, my parents sent me to play little league baseball at the Con Ed field in downtown Manhattan where I grew up. To this date, I am confident to say I am the worst player that ever donned little man cleats.
Have you ever see those movies when the kid gets up to go into the game and all the other kids start screaming at the coach and begging not to put him in? I was that kid.
The highlight of my career was actually making contact with the ball once. ONCE. It was a foul ball but the feeling sure beat the hell out of probably 74 consecutive at bats without even touching the ball to the bat (or bat to ball… still not sure how it is done). What happened after I hit the foul? I struck out. Hindsight being 20-20… I’m glad I did.
That was my first experience of learning what I sucked at. I HATED it. Now, however, I love it. Why? Well, as far as my business goes, if I don’t have the skill level or time to learn or get good something, I now know to delegate it and move on to something else. So here are 7 things I suck out that make me great:
OK, by now, both you and I know that I suck at baseball. So why is the great? Because I gave up baseball and proceeded to get pretty damn good at basketball. In fact, until I had to have my hip replaced a few years ago I played almost every day of my life.
Basketball helped me tremendously in more ways than what one would expect. It was an incredible way of taking out my aggression. It became very social. I went out on many dates as a result of women watching me play … I became friendly with a lot of people that became clients and colleagues in my businesses, I met my literary agent (may he rest in peace) indirectly through basketball, and the list goes on. So that’s the great that came out of the suck as far as baseball is concerned.
I suck working for people. I did it for about 24 months in total over the last 23 years. Don’t get me wrong… I LOVE learning from people that are better or know more than me. In fact, I LOVE IT (although I’ll admit I didn’t always but I do now.) What I hate, hate, hate is when a superior doesn’t take a suggestion simply out of spite because his (or her) title says he knows more than me. To read more on this, read why I never put my title on my business card.
So, what did I do? I started my own business and started working for myself. The great of the suck is that if I didn’t experience sucking at working for people, I never would have had the pull necessary to work for myself.
This one is truly funny. When Gary and I started our first business in college, we decided that I would be the designer and he would run the operations side of the business. The result? I sucked at designing. So what happened? I walked into his office one day and asked him if we could switch. When I left his office, he was officially the designer and I took over the operations side of the business.
The result? Gary has not only been the design director (as well as my partner) in all the companies we have had together, but also he has been the design director for some of the largest and most recognized brands on the planet… That was the great of the suck as far as design was concerned.
I am a tremendously slow reader. I love reading but I suck at it from the perspective that it takes me forever to read something. I think it’s because I scrutinize the text in such a fashion that I must understand every word. If I don’t know a word, I look it up, if I don’t understand the context I re-read it to think it through, I am a certified nut.
So what did I do? I started writing instead. First it was scripts and screenplays, then it became business plans…then it was articles… then PDF Reports and white papers…then blog posts…then books. Thus far, I have probably written thousands of pages of literature and I am not stopping any time soon. If you are a frequent reader of Hustle Branding, you know I wrote a book called How To Ruin A Business Without Really Trying. The book highlights some of the most prevalent mistakes entrepreneurs make when starting a business for the first time. I used myself and my stories as the lab rat. I am happy to say that I have actually helped people by learning through my failures.
I have also found a way now to go through tons of books a year… through listening. Since I have been turned on to Audible, I go through a book a week. So, because I suck a reading (eyes to paper), I have become great at listening to books.
I am never satisfied. I suck at satisfaction. I am never satiated in my thirst for MORE. The good of the suck? … Well, I keep it moving like the energizer bunny. I never quit. I never ever ever think I have learned it all, thus I love people who know more than me (like I mentioned above). My thirst for reaching a goal that keeps setting new markers in the distance will enable me to learn forever.
Speaking of thirst for knowledge…I have a friend. His name is Skip Prichard. Insanely good person and one of the sharpest people I have ever come across. He has accomplished a tremendous amount in life because of his thirst for knowledge. He reads a book a day. THAT IS INSANE. I suggest you check out his blog on leadership. It is awesome.
I suck at most forms of dependence. Don’t get me wrong, I LOVE working with others. I just suck at having the patience to work with people who don’t love working with others.
There are very few people who will want to get my agenda accomplished as much as I do. Gary is on the list, my future wife (who I don’t think I’ve met) is probably another (or at least she will be I hope.) Because of this, the great of the suck is that if there is a way to do it myself, as opposed to waiting for a person who doesn’t have the same vested interest in accomplishing the particular task at hand, I will do it myself.
Although there is plenty more I suck at, here is the last one in this post. I suck at jumping… well, at least I do now Why? Because I replaced my hip and can’t jump like I used to. What is great about the suck? Well, I am training right now to hopefully be back on the basketball court again soon…only I won’t be jumping. I will work on my shot and play the perimeter. For all you ballers out there, you know what I am talking about. For those who don’t, either Google playing the perimeter or take my word for it that there is a great in the suck.
OK. Now your turn. What do you suck at that makes you great?
Looking back on my life I realize that taking risks in my personal life (and the lessons I have learned) have proven to been equally as important as taking a risk in business. The following story explains how I have looked in the eye of risk and won the stare down.
When I was 8 years old I took my very first real risk in life – a risk that almost got me killed. At the time I had no idea of what the word risk meant. All I knew was my parents and friends would always tell me, Don’t do this or don’t to do that. Being that young, I always heeded their advice. There was always a curiosity, but the consequences just seemed to be too much.
I began to realize that most of the people telling me to do these things had never actually gone through the experience themselves, as they were simply just repeating what they had been told, despite the fact that they would say it with such conviction as if they had done it themselves. I began thinking that, if nobody is going through the experience, then how do they really know what the outcome will be? As I thought through this more, a rebellious little boy was born.
I remember this day still so clearly and it would be one that I will never forget.
I was about nine years old. My dad signed me up for swimming lessons every summer – he believed knowing how to swim was a necessity in life and I actually started to like it once I got the hang of it.
The swim instructors would always say, ‘Do not go into the deep end without an instructor.’ I would think to myself the other kids seemed to be doing just fine – nobody was yelling for their life or screaming uncontrollably, so I decided to venture to that end of the pool. I was in the deep end and everything seemed fine. Whats was the big deal, I asked myself? After I had been in that area of the pool for a few minutes I decided to look down under the water, and the floor of the pool seemed so far away.
My mind started getting the best of me and I desperately went into panic mode flailing my arms and yelling, ‘I’m drowning! I’m Drowning!‘ The instructor jumped into the pool and yanked me out. I was exhausted and shaking like a leaf. The next day I thought about what had happened, and one thing kept bothering me about the incident – I was swimming fine and only panicked once I looked down. Why? I had always been able to stand in the water – my safety net, so to speak. It was part of what made me confident to swim – my comfort level. Once that was removed, my confidence was gone even though I was swimming seconds before the incidence.
What I learned was that;
Over the years working with companies and creating my own, I’ve come to understand that taking a risk in business is the only way for it to become successful. This ability is not something endowed to you or something you’re born with – It’s your ability to move from curiosity to courage.
Today is the best day to understand if taking a risk in business is something you’re doing enough of. Risk doesn’t mean death – it means taking another step into a place that you may not totally understand but believe it will be for the betterment for your business.
Taking a risk in business does not come without certain challenges that you will have to confront along the way – Here’s 5 common excuses you will have to meet head-on with tenacity and courage;
We will all go through these stages when taking a risk in business, it’s normal. The question becomes, are you creating mountains out mole hills? That’s our defense mechanism – make it much bigger than it is and you won’t do it. I challenge you to look at it for what it really is and make a personal mandate of seeing your business goals through. Taking a business risk can, and will be the reason you succeed. A little courage will take you a long way.
If you’re not living closer to the edge, then you’re taking up too much room :-]
When looking for investors, one of the most important things I have learned is that the talkers never walk and the walkers never talk. From my experience, the best investors that I have come across have come through with what they did, rather than what they said they were going to do. Big difference. Unfortunately, I learned that lesson as I did the rest, through a painful experience of my own.
In my second company with Gary, The president of our finance company mentioned that she was going to introduce us to a gentleman who apparently had the financial means to give us the capital we were seeking, as she knew we were looking for investors to help us through our growing pains. After speaking with her, however, the vice-president pulled me into his office to warn me about the person that we were about to speak with. He said the man loved to talk about himself and seemed to promise the world to everyone, yet he had never seem him once carry though with an investment in a single company in all the years he had known him. He wanted me to know this up front, because I would never know this when meeting him because he was extremely articulate, well educated and impressive, and easily fooled and deceived whoever was in his company. I appreciated his advice, but figured I had nothing to lose.
The investor’s name was Jack and he was a middle aged, very distinguished looking man who owned a liquor distribution company in California. When speaking with him at first, I was a bit taken aback by his extreme downplaying of money needed, as he assured us a million dollars was hardly an issue. He mentioned that one of his partners was an Arab Sheik, another owned a bank, and both were normally involved in capital infusions of twenty million dollars and higher. He was even sharper and more articulate than anticipated and I could see how easy it was to fall for his line of sh?t…because I had fallen deep already.
After a few talks back and forth, we sent him our business prospectus for him to review with his partners. Upon speaking with him next, he told me he agreed to give me the money that I was looking for, and he would have a bank check available for me the following week.
The following week, he called our showroom and one of our sales people answered the phone. He asked to speak to me and, when our salesperson asked who was calling, he replied, “the man that’s giving your company a million bucks”.
I found it a bit out of place and tactless to say such a thing, being that it was nobody’s business that such a deal was taking place. I decided, however, to let it go so as not to bite the hand before it fed me.
Weeks went by and I hadn’t received either a check or a phone call from Jack. After repeatedly trying him on the phone and receiving no response, I went to speak with the president of our financing company again, to ask her if she had heard any word from Jack. She replied that she had heard from him and that he had decided to pass on the investment.
He never even called to tell me. We never spoke again.
There are certain flashbulbs that should light up over your head anytime you come into contact with someone that promises you the moon and the stars.
A good rule of thumb is the more a hard-working entrepreneur earns (as opposed to inherits- big difference), the more careful they are to let go of the money they have worked so hard to make. The same rule applies to their approach to investing, especially when they are considering making an investment in an area that they are unfamiliar with, which was the case here, as the man and his partners were not familiar with our business (fashion). When an investor not familiar with your market is looking to invest, they are usually extremely slow moving, ask a lot of questions, and typically request a ton of information on the industry as well as any and all other relevant information so as to educate them on that particular market.
Truth be told, in most cases, investors like to stick to what they are good at, however this is not always the case. I had previously never witnessed such a person make a quick, hasty decision to spend such a large amount of money. Even if I had, I sincerely doubt such a person would shout it to the world, as such information is often even more private to that person than anyone, and they would not wish any outside person to know such personal information.
I had been warned, witnessed the distress signals, but still was blinded by the sight of a million-dollar check glaring in my face, though I never witnessed such a sight… at least not that time.
There is one addition to the rule…not only do the walkers never talk and the talkers never walk, but after the talkers don’t walk, they invariably hide and/or disappear…a la Jack.
The following is an excerpt from How To Ruin A Business Without Really Trying… To receive complimentary chapters, sign in below to get a download link. For more information about the book, Click Here
Being an entrepreneur is hard enough, but when you add close-mindedness to the list of obstacles you have to hurdle, it becomes increasingly hard to win. I use the original quote from Lord Thomas Dewar, “Minds are like parachutes, they only function when open” to explain how it affected a business decision MJ and I recently had to make.