For most entrepreneurs, it is not ideas that are missing, it is the resources to act on the ideas they do have. Even in the age of “free” websites (more on that fallacy in another post), “free” business cards and a host of other “free” tools, it costs money to turn ideas into products and businesses.
Depending on where you are located, there are, in fact, a lot of options for raising money to start a business. Credit cards are, unfortunately, probably the second most likely source for business cash (right behind family and friends), but this route is fraught with risk. Even if you are considering more traditional loan options, credit usually puts your personal assets at risk should things go wrong. Purchasing mistakes, bad planning or dishonest employees could move you from business owner to homeless person.
The third most likely way to get the resources you need is to work with some sort of investor. Now, unlike the sagas that unfold on tv’s Shark Tank, it will take more than a few minutes of great presentation skills to get an investor interested in funding your invention. Investors come in various forms. Angel investors often get interested based on relationships, your ability to demonstrate a passion and some degree of business acumen on your part. Basically, they are initially interested because something about your idea speaks to them personally. Venture capitalists (maybe an outdated title, but an apt description) are more likely to examine your concept and the corresponding business plan, then invest based on their studied opinion that you can make money for them.
As idealists (ok, dreamers), the possibility of being able to pursue a dream can bring on a sort of prolonged euphoria. Unfortunately, that elation and sense of satisfaction can also leave entrepreneurs blind to the most dangerous (and least discussed) pitfall in the world of business start-ups. I call it the Entrepreneur’s Paradox.
The Entrepreneur’s Paradox is the natural conflict between a new business’s need for capital and the investor’s desire to inject their own ideas and make a return on their investment. Now, before you think it, I am not so naive as to think that funding comes without expectation of performance. The issue I raise is about what happens when an entrepreneur sees their ideas highjacked by investors who see themselves as the only hope a business has. In our desire to bring ideas to fruition, entrepreneurs can tend to accept terms that ultimately lead to failure or at least an end-result that has no resemblance to the original idea.
Henry Kissinger is credited with saying, “Power is the great aphrodisiac.” In the business world, money translates to power, leading us to the conclusion that money is the great (greatest?) aphrodisiac. Economists and consultants like to quote the statistics on new businesses that fail. However, I am not aware of much research into failures brought on by the Entrepreneur’s Paradox. How many times do great ideas crash and burn after an angel investor forced their people into a culture where they did not fit? How many viable lifestyle brands never see the light of day because an investor with manufacturing experience insists on outdated distribution channels?
Some might try to simplify the Entrepreneur’s Paradox to say that ideas need investment and investment stifles ideas. Luckily, it is not quite that bad. As you search for ways to bring your ideas to market, you’ll have to beat every bush and shake every tree to find the money you need. Along the way, be careful of investors who are too excited about your idea, who “know just who you need,” or who want to help you “tweak” every aspect of your plans. Look for business people that are willing to be a little detached from the business and work with them to set reasonable expectations on the rate of return. Keep communications open with them (listening to their advice and suggestions is critical), don’t mislead them and never, NEVER let them be surprised by anything that happens—except a faster payoff for them!
As you discover your strengths and obstacles, look for complimentary traits in your investor. Tap into their knowledge and demonstrate a willingness to act on good advice. As you exhibit responsibility and good stewardship with the resources they are offering, your credibility will grow and their desire to change what you’re doing will be lessened. Treat reliable investors with respect and you will earn from them a respect all your own.
Approach investors with a well-designed plan, a reasonable (as opposed to emotional) passion and the ability to engage in two-way communications. The key with any business idea is to pursue the concept with research, documentation and the ability to clearly articulate a logical plan for success. A well-designed strategy for executing your idea that includes a request for appropriate investment can meaning the difference between avoiding the Entrepreneur’s Paradox and becoming another economic statistic.