Today is a quick episode and is a little bit of a rant, but I want to talk to you about building a real business versus chasing funding.
So many potential clients come to me asking me to help them raise money and many of them ask me to work for free in exchange for "getting in on the ground floor" because " why would I want to make 150 bucks an hour when I could have a slice of what will be a billion dollar company?" They then proceed to explain to me how they intend to go about raising cash and what role they want me to play in that. This is always a huge red flag because I would never want to my compensation tied to the success or failure of an entrepreneur who measures that success or failure based on raising money. I want him or her to focus on building a legit business, not talking investor after investor into funding it.
Listen, I've interviewed dozens and dozens of entrepreneurs, investors, and people that run incubator and accelerator programs; I have watched probably hundreds of pitches; I have met with dozens of clients wanting to raise capital and it's always the same story: the entrepreneurs say there just isn't enough funding available and the investors say there just isn't enough deal flow available. At the end of the day though, I have yet to see an entrepreneur with a truly great idea, great leadership abilities, and great team not get funded. Literally never.
I have, however, seen tons of entrepreneurs complain that the investors can't see their vision when their vision doesn't make sense because their potential market is too small, or they don't understand the competition, or they haven't thought through how they'll attract customers, or any number of other things that have nothing to do with money and everything to do with the business or the entrepreneur.
I maintain that there really isn't a lack of funding, there is a lack of understanding of who gets funded and why. The first thing you need to do if you're interested in raising outside capital is understand the motivations of an investor. The investor is motivated by his or her ability to make money from your deal and his or her ability to make money from your deal is dependent on you being able to build a valuable company. Therefore, if you want to succeed, stop focusing all of your energy on asking people for cash and spend some of that energy on building your business.
Now, don't get me wrong, sometimes you'll need to spend energy attracting funders in order to grow your business properly, I'm not denying that. I'm just saying that you have to look at raising capital as a part of the strategic growth plan of your business, not as the end goal. When you see it as a part of the overall strategy, as one of many necessary steps to success, you'll be better able to focus appropriate amounts of time on other things like nailing your business model and making sure you're kicking ass at attracting and retaining happy customers.
Source Cate Costa