Get Investment to Grow Your Business, Not Prove Your Concept

Getting investment in your start-up may be absolutely necessary to grow your business. But unless you’re getting “dumb” money from family and friends who won’t ask too many questions, going for investment too early can prove disastrous. Here’s why.

You never want to get investment to pay daily operating expenses, because that means you’re in bad financial shape, and perhaps your business just isn’t that solid. Hey – if you can’t be more critical and honest about your company than anyone else, you’re already in trouble. Furthermore, any kind of sophisticated investor will be able to immediately sniff our your precarious situation, and either because of the large amount of risk, and/or because they know they have you in a tough place, they’ll squeeze you for really tough terms.

If you then start doing much better, you’ll regret the terms at which you made the investment.

Finally, most investors won’t consider investing in a company in tough shape to begin with, so more likely than not, even if you’re willing to accept one-sided terms, you probably still won’t even be able to get them.

If at all possible, boot-strap yourself to the point where you prove your business model.  This includes, but is not limited to your ability to:

Product Companies

-Reliably source your units with acceptable quality and in acceptable time frames
-Warehouse if needed, and ship as desired by your clients
-Make sufficient margin on the unit sales to not only cover your cost of goods but to defray adequate general overhead as well
-Demonstrate that you can obtain enough additional customers at a similar cost to make the business viable

Service Companies

-Reliably obtain and train the necessary number of people needed to provide your service to the first batches of clients
-Make sufficient margin on the unit sales to not only cover your cost of sales but to defray adequate general overhead as well
-Demonstrate that you can obtain enough additional customers at a similar cost to make the business viable

Once you have proven that your business can work, investment, and debt become appropriate and viable methods of financing. Now you’re not asking the world to help prove that you were right, because the world will invariably charge dearly for that. That’s your job, you’re the one who said you could do it. Get investment after you’ve shown that you’re on to something – investors will be happy to give you money to grow, or scale your business, and will also give you terms that you won’t laugh / cry at.

So eat that risk, and then you’ll reap a far greater reward.

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