Apart from personal funds, many times business starters seek funds from Angels (relatives or friends), investors or lending institutions such as banks, co-operative societies and such others. Angels are more forgiving and less inquisitive about the business and its nitty-gritties. Even if your idea is as bogus as they come, there is an angel who will say that they believe you can make it succeed. A venture capitalist (VC) will tell you off and they return the cheque book into their pockets until the next time they hear from you with a better idea.
The process of choosing who should fund you is not today’s conversation. Let us first discuss how to handle the resources that are put in our business by whoever sees it as a worthy investment.
Don’t get it if you don’t need it
A VC or an angel doesn’t step in to fund your dream because they have nothing else to do with the money. As a point of respect, you shouldn’t ask for it if you don’t need it. In consulting for some of our clients, we come across well prepared business plans which lose their great appeal once we go through the financials with a fine tooth-comb. Here is an example; a quick food proposal to supply fresh food by use of motorcycles is drawn up and the financials include some money to purchase a small 1 tonne truck and a small personal car. On further discussions with the entrepreneur, she says that she needs the small car for use when going to meetings with potential customers and suppliers and it will help her support the business more efficiently. On further exploration where we are tying in the financials with the business model, target customers and entire operations, it is soon clear that the business can well do without the personal car at that point and the truck can be easily substituted with a modified half tonne pick up which will overall cost less.
Remember this when you are pitching for capital: The investor has worked hard to get the money you are asking them to give you. If you don’t need it, don’t ask for it.
Use it for its intended purpose
Anything whose purpose is not known stands to be abused or misused. This is a paraphrase of what was a principle teaching of the late Dr. Myles Munroe. I would dare add a statement and say that where discipline is not applied to the management of something, its misuse and abuse is also inevitable. When an investor trusts you to execute on the plan you shared by giving you the investment capital of his time, money and other resources, valiantly fight against the temptation to veer off the script you gave. If you said the money will go into buying equipment, let it buy the equipment. Don’t divert funds to fund a superfluous lifestyle. To restate a share by one Mr. D. P. Mavia, money amplifies what is lodged within the heart. Without money, many at times, the mind is very clear on what needs to be done and achieved with the money; until it comes into the vicinity and every deliberation is now assessed through the veil of the money at hand.
Another truth that is shared often Mr. D.P. Mavia is that you have not multiplied money until you have it in a factor of two. Financial success cannot be attained by addition, subtraction or division. It is achieved through multiplication of what is available. Investors smile generously when they see the money they pumped into the business is growing in multiples and it is very likely that in such scenarios, they will take you seriously when you go back to them (which is unlikely if you are doing things right) for additional capital. Unlikely because a good entrepreneur will reinvest the multiplied fruit rather than use it for recurrent and/ or unprofitable expenditure. Shark Tank’s (an NBC program featuring entrepreneurs and investors) Kevin O’Leary has been quoted saying “Money is my military, each dollar a soldier. I never send my money into battle unprepared and undefended. I send it to conquer and take currency prisoner and bring it back to me.” While his approach to money is quite radical, Kevin highlights a very key component about money. Used in the right way, it can work for you in multiples and win you many battles in the business world.
Accountability allows you to be transparent to the investors and others who are helping you drive your venture/ idea or business forward. It allows you to know how the capital is being utilized and where to change. It also allows you the special place of showing that you have integrity and can be trusted to not only manage resources but also the relationships that are tied with your business. Mr. O’Leary has also expressed it before that, “The ultimate truth about money is that even though it doesn’t care about me or you, to make money requires us to care deeply about it.” Accountability doesn’t require a degree in finance management or certification in accounting, but it does require one to be business savvy, knowledgeable about assets and liabilities, risk conscious, have integrity and know the place of debt in business. The reward for accountability is not success, but rather more responsibility and more resources being entrusted to you.
Put first things first
When setting up a business or getting into expansion mode, an entrepreneur, should never sacrifice what is important to the vision/ mission of the business/ venture. I suppose in the order of presentation, this element should have come first, but its placement does not demean its importance. Goethe says, “Things which matter most must never be at the mercy of things which matter least.” As you invite angels and VCs into the business, you must not lose sight of the whys and hows of your business. If you quit your job to start a business, you can’t lose sight of the fact that you don’t know all the ropes and that means you will need help. Losing sight of your need for help will cause you to be selfish and you will not hire the right people. In the book, The 7 habits of Highly Effective People, Stephen Covey highlight seven habits for effectiveness: Proactivity, Beginning with the end in mind, putting first things first, thinking win-win, seeking first to understand then to be understood, building and maintaining synergies and finally sharpening the saw. Reading through this book, one of the many takeaways is this, you should never trade your key principles of good business for money.
As you evaluate your investment options for setting up or expanding your business, don’t get into unnecessary debt. At the right time, the funding needed for your business will be fulfilled, but it needs to find you, with the right attitude and framework of mind.
July 1 marks the beginning of the 2nd half of the year and if you are at a place where your business idea or existing business needs a fresh set of eyes and ears to keep you working at it, I welcome you to a One Day Idea Clinic at Nairobi’s, UBS building, Ndemi Road, off Ngong Road. Slots are limited and participation must be confirmed before hand.