3. Get help doing your projections and cash flows from someone who’s done this before. This can save you a lot of time, effort and embarrassment because few people who haven’t done this before really understand, for example, the critical importance of cash flow timing differences. One of the biggest mistakes entrepreneurs and managers both make is thinking that businesses run on profits. Not true – they run on cash. That difference can make or break a new business. So, be realistic about the amount of money you need to launch your business.
4. Do not start underfunded. There is an enormous temptation when you know you need $1,000,000 and someone offers you $500,000 to take it and see what happens; but that has two downsides: (a) It puts the entrepreneur under enormous pressure to keep looking for money while trying to start the business. (b) It gives a prospective new investor enormous leverage because the investor knows the entrepreneur is at risk of losing everything. And if the entrepreneur is unable to get the rest of the money, the feeling of failure is amplified greatly.
5. Understand that a business is a thing, not you. Being optimistic and confident is essential; but the reality is that a lot of new businesses don’t succeed. If the business doesn’t succeed, that does not mean the entrepreneur is a failure. It means something done was not successful, but the entrepreneur – as a person – is still valuable, and should not feel embarrassed to re-engage with friends, family and colleagues. Similarly, this point is for people close to the entrepreneur: As important as it is for friends and family to be supportive of an entrepreneur, it is equally if not more important to be just as supportive if the venture doesn’t succeed, because that’s when the entrepreneur will need the re-affirmation of people close that he or she is still the same person as before.
Based on that last answer, what are the biggest initial hurdles to building a business and how can people overcome them?
Based on the last answer, “being realistic” about those elements can be very difficult and one has to step back and be able to evaluate as if it’s someone else and someone else’s ideas.
The ground rules of such a relationship must be laid out at the beginning to include the following: “No matter how much the friend/advisor wants to be supportive and not discourage or hurt the entrepreneur’s feelings, the friend/advisor must speak his or her mind, regardless of the consequences.” If not, and the friend/advisor is more concerned about not hurting the entrepreneur’s feelings, the truth could be covered up or ignored. Of course, raising capital is difficult. How to overcome that? Get a thick skin, don’t take rejection personally and keep at it.
For any Entrepreneur, Venture Capital is important, do you prefer to pursue funding or build organically and why?
If at all possible, build organically until you have a great story and investors come to you. That’s when you’re in command. At the beginning, outside funding sources are in command; but if you need outside funding, do what you have to do.
There are always competitors on the market, what is the best plan to compete against them? The best plan to deal with competition is to determine (a) who your target audience is and (b) what your points of differentiation are that are important to your target audience. It could be price, quality, service, location, ambiance, convenience, warranty, whatever. The difference may even include simply “doing it better” than the competition; though the difficulty with that is effectively communicating that subjective quality to your audience because it’s easy for anyone to say.
For those who partner up with someone in business, what should they be looking for?
There are operating partners, there are managing partners and there are investors. Most important is the ability to trust the people with whom you are in business. Without trust, you will have many sleepless nights. I learned this lesson the hard way when, in one business that was open late at night and I was the morning person, every few mornings the bookkeeper would say, “Jeff, $X is missing” and my answer was always “It’s not missing if you know where it is.”