How to Finally Get Realistic About Finding Funding for Your Business
Entrepreneurs have to be our own loudest cheerleaders when we have a great idea for a business. However, when we are seeking an investment to fuel that idea, we really need to put the pompoms down and get realistic about whether or not someone is actually going to fund us. I quickly learned that I had to make a 180-degree attitude adjustment about how I was approaching my investor strategy.
Here’s how I made my approach more realistic to the market and what I was trying to accomplish with my startup:
Trimmed the fat from my business budget.
I had to get my costs way down and create a startup that would have very low BMI (budget mass index). There was no room for those empty expenses that did nothing to propel the business forward. I cut every cost that didn't make sense and I couldn't cover personally.
No one was going to invest in my company if all they saw where these unnecessary additions to the budget that would just slow down the timeframe to profitability and return on investment. The burn rate would be too fast and I would be back again to ask for more. Therefore, I put my budget on a diet that could extend the life of the business and make it more attractive to investors.
Became debt free.
Many investors will ask about your personal finances. I've found that investors don't like investing in financial train wrecks. Now I see why they do after being asked about it, and especially when I'm in an investor myself. My own money habits would be a good indication of how I would make financial decisions in my business. If they could see that I was debt-free, paid my bills on time and used credit wisely, I’d have a better chance at being handed a rather large sum of money. Essentially, I would be trustworthy if I had a fiscally responsible track record.
While it took some time to pay off school and car loans, as well as zero out those credit cards and then save a little, it was worth the wait. I received more funding offers after clearing up my personal credit history.
Lowered my funding expectations.
With the recent downturn in the amount of money that VCs and angel investors are doling out, lowering the dollar amount becomes a critical point about getting in touch with reality about investments for your business. When I started out with my search for investment, the environment was similar in terms of not many reaching into their wallets and forking over large sums of money. This taught me to re-asses how much I was asking for. With a leaner budget and a clearer picture, I knew that I could ask for significantly less money. Once I did, more funding offers were on the table for me to consider.
Now, I’m glad that investors taught me that I could do more with less funding. This taught me more prudent spending early on that I still use today despite running a highly successful business. Even if you have the money, it doesn’t mean you need to spend it. The realistic and careful approach has served me well from startup and build-out to establishment and expansion.
Sharpened my business plan.
After getting feedback (along with rejections) from a few investors, I realized that I was not providing enough information in my business plan that these investors wanted to know. Particularly the investors wanted to know about how I would achieve the expected return on investment that they sought. This meant proving out how I was going to get customers and have a clear path to profitability. Right now an online invoicing customer costs us $12 through Adwords and over the course of a year will make us around $18. The average customer lasts almost 3 years. If you can show them how you're turning dollars into more dollars, you'll get an investment.
Interest grew among the investment community once I bolstered my business plan with this type of critical information. I saw that investors were then more willing to consider my business idea. A solid, realistic business plan with goals is what most investors are looking for.
Consider alternative funding options.
Similar to when the traditional mortgage product was hard to come by and lending in general was a challenge, alternative options started to appear. The same can be said for the funding of startups. I had to be realistic and think about options of how I would get along if I might have to try something different from a VC or angel investor or even a bank loan.
I spent time reading and weighing the pros and cons of various alternative funding options when it seemed like the traditional routes were not yielding what I had hoped. When I did check out the options, I discovered a whole new world of funding possibilities, including crowdfunding, business plan competitions, and SBA microloans.
On some ventures, I’ve also been realistic that the small amounts of money I really needed could just be obtained by bootstrapping (a.k.a., self-funding) through my own savings and prudent use of my paychecks from my 9-to-5 job.
Know when to hold 'em and when to fold 'em.
It may be difficult to stay realistic on your approach when you keep getting rejected for funding. I was turned down countless times and felt very discouraged. I had even read about successful entrepreneurs who were turned down dozens of times but kept pursuing their dream.
But, with each rejection, I learned something new and applied it to my next attempt. My mentor and others who believed in my business idea told me to keep going. Even those investors that turned me down said not to give up, and most of these investors had some ideas that could help me - the learning curve became an accelerated program in finance and business for me. This told me I was being realistic -- to hold my head up -- and keep trying.
However, there may be many be times when you need to be realistic about the possibility that you really should fold that idea and try pursuing something that will attract investor attention a little better, and be disruptive to the marketplace, giving your next business more potential for sustained success. If the reality hits that says, "give it up," don’t take it badly. Mourn for a day or two if you want, but then get up and go again. Find the resilient part of yourself, and move forward. This scenario is going to happen to you again and again. It’s all part of the process of being an entrepreneur and essential in getting you to where you really need to be in terms of a viable business.