And so, at last, we come back to finance. Business link research has always shown that access to finance comes after Sales and Marketing and regulatory compliance in the concerns of small businesses. Everything else comes nowhere.
So where do we get our money from. Do we bootstrap and max out our credit cards, do we borrow from family and friends. Do we find an angel, do we go to venture, do we hit the bank?
The answer as always depends on where you are, what you are trying to do and where do you want to go.
If you are setting up as a consultant, your needs are different from that of an inventor who’s got a revolutionary idea for a consumer product. (Most are going to get nowhere but occasionally you get James Dyson)
We’ve done 4 business start-ups to date.
The first one we each put in £3k but we relied on our business partner who had £20k in the bank (this was 1981)
The second one we had 2 second hand computers, a mailing list and the clothes we stood up in. (What does that tell you?)
The third was a management buy-out from a government project funded by an Angel – let’s call him Uncle Zak (not his real name). I was demoted from entrepreneur to Guru on account of my great age and wisdom which is why I’m writing this now.
The fourth time we walked out after an uncongenial merger and did another cold start. Although we were reasonably well off by then. We’re now in our 5th year of trading with a turnover of half a million.
Fundamentally you have to establish where you are in the overall scheme of things and whether you are running a 1 man band, a life style business or a growth business bent on dominating some global niche. One of the luminaries on Ecademy set up a club dealing with global finance. This diagram was developed to encapsulate what I learned from there and to summarise the overall process.
This tells us that there are several stages in getting finance. First of all you need to establish that you have got a business model that is going to work. If you just want a life-style business that earns a nice little profit employing up to about 10 people then Friends, fools and family will do nicely. If you are looking to try an invention this is where you should be looking. VC’s won’t touch you. They are only interested in funding things that they know are going to work. That’s why they are entrepreneurs.
There’s a lot of nonsense talked about entrepreneurs and risk. Actually you try and minimise the risk – don’t bet serious money until you know it’s likely to work and try and get an unfair advantage. Our unfair advantage in the current business is that my business partner was able to write the e-commerce engine herself – she’d been writing database apps for 25 years by then with about 8 years experience of putting them inside browsers. It saved us a really risky bet of about £30k on an unproven business model since all that was at stake was her time.
Next time I’ll talk a bit about Angels – and our experiences with them.