Needs & Equity Financing

There’re are books and guidance from here to Cheyenne on how to secure equity financing to turn your dream into reality.  Much as I would like to assist in raising capital almost every successful entrepreneur I know protected their equity and grew organically with no early equity financing, many never.  Inasmuch as we’d all like to achieve our success yesterday except in relatively rare circumstances protecting equity and a more measured approach is usually the best approach.  Consider:

  • Have you been caught up in the process of securing angel investors to validate your idea?  I see a fair amount of this, raising capital becomes the goal not the great idea.  Do you really want a new boss or more likely more bosses then you ever imagined?  Is raising capital an excuse for not succeeding?  Do you remember the 1969 Mets motto?  “You gotta believe!
  • Do you really need that swanky space?  Unless you will be doing business in your facility that answer is likely no.  It’s probably a want, not a need.
  • Do you really need all those employees?  I’ve always looked to maximize employees capabilities and skills not empire build.  Typically when I meet someone new and number of employees comes up early in the conversation they aren’t doing so well.  I’ve had some success turning around underperforming operations with some very measurable results.  How many employees were working in those situations early on – about half.  E.g. – in one situation we grew top line 5-fold with a 2-fold increase of staff, margin improvement of 40%.  I’d like to say that was genius, it wasn’t, rather focus on key metrics, leveraging technology,maximizing employee capabilities and leadership with training, clear direction and regular measuring of results.  In an earlier post I quoted from Bob Parsons “16 Rules for Success in Business and in Life”  Rule #9 “Measure everything of significance.  I swear this is true.  Anything that is measured and watched, improves.”  Want to be surprised?  Take a few moments to check with your managers you are being advised as “under control” but not reported or measured.  I can just about guaranty you’ll be surprised.
  • Rent or Buy?  Rent EVERYTHING early on!  Space, equipment, “employees”.  This is a great way to conserve cash.  Sure I’m a Rent-a-CFO, renting is still sound strategy.  A word of caution, be careful with “free-lance” labor that are effectively employees, it’s a hot button with the Dept. of Labor and expensive if they deem your “free lancers” are really employees.

Each of the above, but the tip of the iceberg and time proven strategies.

To be fair, surely there are times when it is prudent to raise equity capital, perhaps building a prototype that you are unable to finance otherwise to get off the ground, a good example of when to give up some of your equity likely prudent.  In most situations the answer to achieving early stage growth is “NO”.  Protect your equity.

There’s a pretty good chance you don’t need to give up equity.  There’s also a pretty good chance all you really need is a capable, trusted advisor.

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