You Gotta Have Skin in the Game

I’ve seen umpteen business plans / prospectuses / PPMS and the like where the Use of Proceeds earmarks a full competitive salary for the entrepreneur(s) and also repays them what they’ve put into the business so far. Ask the entrepreneur about this, and they’ll usually say something along the lines of “I’m taking so much risk already not working for a large company, I can’t afford to take a hair cut on my salary when I have a mortgage and kids.”

The world doesn’t care about your expenses – but investors do.

Unless you’ve already been so successful in the past that investors are beating a path to your door, you’re not doing investors a “favor” by “allowing” them to participate in your business. And if you do have investors clamoring to get in on your new opportunity, chances are that you’ve already made so much money that you don’t need investors, and choose to not have them to begin with.

Your new company is not you, and it doesn’t owe you more than the lesser of:

1. What you’re worth
2. What the company can afford

You don’t start a new company for security, you start it because you’re confident that before long your hunch will be proved right in the form of a rapidly growing list of happy customers.

If you don’t have your own skin in the game – what’s to stop you from stopping when the going gets tough? You can simply walk away at any time, no worse for the wear. And where’s your commitment? If you don’t believe so much in what you’re doing to go without salary, bloat up your credit cards, take out a second mortgage, drive a beater car, etc. etc. then why should anyone else?

The best signal you can send to investors, employees, and partners, is that you yourself are personally financially committed to your new business. You tell people that you’re committed, but they hear that all the time and tune it out. Show people that you’re truly committed – that you’ve burned your ship after landing on the island, that you’re the pig whose bacon shows commitment in the breakfast as opposed to the chicken whose eggs shows involvement – choose your metaphor, and you’re halfway home.

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