Forums: Discussions for entrepreneurs and small business.

This is a odd subject I know, but I am going make a valiant effort to convince you that financing can kill a start-up's chances at long term success.  Doesn't make any sense does it?  But there is some well founded truth to the statement.

A good idea makes money.  A bad idea needs financing.

Ok, I'm not saying that a business doesn't need financing, what I am saying is that a business needs to have too little financing.  New start-ups need to be constantly adapting their idea and business model to what their audience wants.  A business with a ton of cash doesn't have to adapt or change to properly

Having no money forces creativity...

It is really true.  When there is a lack of funds it creates urgency, and when there is too much money it lets us be lazy.  It really does!  Why do we need to push so hard?  There is plenty of dough in the bank, we aren't going under!!!

anyone agree with the idea here?

Tom,

An interesting view. Certainly there were companies during the dot com boom that fit your scenario of "plenty of dough" in the bank. Many should never received any capital.  There aren't many of those situations around these days.

However, I can also cite may situations whee the lack of adequate capital killed the company and the idea.

I believe the key to successfully building a company is to have access to the "right" amount of capital at the "right" time. The secret, of course, is knowing the answers to the "right" questions!

 Amen to that! Speaking from someone that has lost a brick and mortar business due to lack of adequate capital....believe me it had nothing to do with being lazy or lacking creativity. It was more like Robert said, not having the "right" amount of capital at the "right" time.

Sylvia, I'm sorry to hear that!  I'm afraid that my idea has been lost though.  Let me ask, would financing have brought in new customers? If the revenue wasn't coming in to cover the costs would the financed money brought the customers in? ...or would it simply have delayed your need to have supportive success...

This is sort of the mindset I have as I open my cafe. I figure if it's going to work, it's going to work. If it's going to fail, it's going to fail. I'm not sure if my idea plummets straight into my safety net, that I'll have any option but close anyway. One of my potential startup members says, I should have enough of a safety net to pay all expenses for a year. I say, if I don't make a single sale in a single day, a single week, even - I'm screwed and I know it. The "whole year of complete and utter failure" scenario isn't realistic, and moreover, I won't let it happen. I'm no poker champion, but I know when to fold a losing hand. I won't need a full year's expenses, because I won't drag a dead business around for a whole year.

Start up businesses often fail because of cash flow problems, because owners have not thought realistically ahead. If someone starts a business without having any idea about financial management and without getting good advice on the subject, then they stand a good chance of getting into trouble. But the same can be said about marketing. Opening a new restaurant, for example, because someone likes cooking may lead to failure if they do no or insufficient marketing or ineffective marketing.

I don't agree with the first point..."having no money forces creativity" - or rather, I do agree with the point but as an investor I'm not looking for an entrepreneur who is creative for creative sake - I want an entrepreneur who spends their time on the right things. Let me give you an example...the other day I wanted to fly to California - I spent 30 minutes on Expedia to find a flight...I could have spent half the day on Expedia, Travelocity, Continental's own website, priceline and hotwire...I could have spent all day at it and saved, perhaps, $75.  If I was an investor or if I was even the entrepreneur themselves - do I want them spending a day saving $75 (I mean - how much is their time worth? Less than a burger flipper?) or should they be focusing on getting more customers? Improving the product? Expanding Distribution? Keeping the existing customers 110% happy?

Having too much cash leads to a lack of flexibility - having no cash leads to wasted time on all the wrong things. Measured cash, to allow the company to move efficiently towards set milestones and move the company up the growth curve....now that is the ideal.

Anyone disagree?

Andrew

http://www.TheFundingGuru.com

Working out a business model that can work without financing is what most entrepreneurs should do. I agree with you. Financing can come in at a later date to help the business to scale. To speed up the organic process.

     Though I won't speak in absolutes as far as funding or no funding (oh, how I could use and would love some funding), I have to say I am definitely in GearGoggles camp as far as the argument goes. 

     You certainly adopt a different mindset when you have little or no money to work with.  And Andrew asked if anyone disagrees with him, and no disrespect (Hey, he asked!) but I DO disagree.  I think his answer actually made the point about thinking creatively when you are forced to.  He said he "wanted to go to California" (that's fine), so he looked up a plane ticket (of course), and bought a ticket at a savings without spend too much time in manpower.  All good stuff, and very sound thinking.  But we are not talking about sound thinking!

     Someone without money questions everything: 1.)  do I "have" to go or "want" to go?  2.) can I gain what I'm trying to some other way -- via computer, people and places around me here, etc  3.) If I "have" to go to California, is there some other way to get there  4.) If I have to fly could I swap services with a charter flight service, etc.

     I guess I'm just agreeing with the others that your mind doesn't go to other places if it perceives it doesn't have to.  Some people crumble under pressure, but others thrive and that pressure is just what is needed to propel them to success -- pressure that isn't felt as strongly when financing is available and waiting. 

     Struggling is not fun.  But sometimes it's necessary, possibly even beneficial.  Just some thoughts.

Midge   

Financing doesn't kill a biz -- directly -- as you suggest by stifling creativity, imo.  but, often the strings that the financing brings can kill it.

What do I mean by this?

Well, big money, specifically OPM managed by a pro (read: top tier VC) doesn't have time for nice solid cash flowing businesses.

They need to roll over their fund every 5 to 7 years and need returns.

Therefore, they will literally kill a business that is a solid double or triple (to use some baseball parlance) and lever it up to shoot for the grand slam or the strikeout.

To them there is less time and headache with either massive success or utter failure and they haven't time for other outcomes.

THAT can kill what would have been a nice little biz.

I wrote a hubpage on it to share with friends cuz i kept getting asked the same question...you can check out it here...

how to raise venture capital for your company

There aren't any veiled pitches or anything in there....there might be some commercial links but they are the property of hubpages to keep the lights on or whatever...

obviously, angel money or friends and family will have different expectations, but then again, it'll be alot less money, so it's kind of a non-issue when you have less than 12 months operating cash on hand, imo.

go cool.

r8r