Why Give Up a Stake in Your Business? Because 20 Percent of Something Is Worth More Than 100 Percent of Nothing. If you think you are going to build your empire all by yourself, you are in for a very slow and painful climb.
By Eli Crane •
Opinions expressed by Entrepreneur contributors are their own.
If you are an entrepreneur or would like to start a business, you must resist greed, stupidity and that inner control freak if you want your business to grow. Unfortunately, I see entrepreneurs screw this up all the time. It happens most frequently during negotiations with investors, when an entrepreneur is at a crossroads but resists giving up equity or taking on partners because they believe they can't afford to. You will need help from others to accomplish your dreams and build your empire. If you think you are going to do it all by yourself, you are in for a very slow and painful climb.
Related: 6 Tips for Successfully Splitting Equity in Your Startup
Understand the golden rule of growth.
This concept is actually based on a very simple idea. Most of us are very limited by ourselves. To get critical team members and capital on board you will need to be very creative and smart with your equity and resources, but one thing is for sure -- you will have no choice but to divvy up and share the wealth to get where you want to go. Entrepreneurs who don't understand this almost always end up owning 100 percent of nothing.
I knew this going into ABC's Shark Tank with my company BottleBreacher. If you haven't watched the show yet, I encourage you to tune in. I guarantee you will see a couple of entrepreneurs who "get it" and make a life changing deal. Maybe they've given up 40 percent of their company, but they walk away with great partners and 60 percent of a growing business. Or you will see some who miss it entirely and walk out owning 100 percent of a fledging business that will most likely fail.
Picture this: You have an impressive entrepreneur with a great product and great sales. He's on his way to building his empire with momentum swinging his way. The Sharks are excited and battling with each other for a piece of the action. Unfortunately, the momentum often starts a violent reversal after the Sharks inevitable counter-offer to sweeten the deal for them and take more equity. This is when I hold my breath and question whether or not the entrepreneur understands the golden rule of growth.
Related: How to Fairly Divide Equity Between a Co-Founder and Investor
You see, smart entrepreneurs understand that this business they are pitching now has the potential to turn into endless opportunities and connections down the road. They also understand that this present business might not even be the pivotal one that ends up being their entrepreneurial masterpiece. They see it as an opening to sit at the table, the chance to start rubbing elbows with much bigger and more successful entrepreneurs that can make a key intro or shine a light where there is darkness. Forward-thinking entrepreneurs also have the situational awareness to realize that investors who have a bigger stake in the game are much more likely to go to work and flex their business-savvy muscle to help that investment grow.
You can't afford to do it all.
Are you an owner-operator that acts more like an employee rather than a business owner, doing tasks that someone else could be doing that would free you up to build your business? The big excuse is you can't afford to bring anyone on to do one of the 15 jobs that you're doing ineffectively. The sad fact of the matter is this, you honestly can't afford not to! This is usually the very reason you may be stagnant in growing your business. Entrepreneurs who learn to make calculated decisions and bring in that new team member to streamline and pour expertise into a neglected department will quickly find that they were in fact the bottleneck that was clogging up any opportunity for growth.
Related: How Entrepreneurs Can Avoid Million-Dollar Mistakes
Let go to grow.
When I ask entrepreneurs why they're in this rut, I often find their decisions are routed in fear and ignorance. Fear is usually the biggest thing that keeps entrepreneurs from understanding how taking a step back can truly catapult them forward. It can be scary bringing on tactical partners who offer money, expertise and key team members to help you grow. You might be afraid you'll lose control; that your investment in a new hire or team member won't yield the expected ROI fast enough. There is nothing wrong with being cautious and thorough in making these big time decisions but it is necessary for most businesses to grow.
I would never advocate the careless distribution of equity and capital. I've adopted this mantra because I understand how limited most of us are in our overall capabilities and business acumen. To get where most of us want to go we will have no choice but to break off pieces of equity and capital over time to build out our teams and position our companies for future growth. I should know; after a short five years in business, I only own 60 percent of my company. I am not ashamed of that at all. By applying the lessons I've laid out here to my own business, I have three extremely valuable partners and have been able to grow a multimillion dollar business from scratch in a very short time. There are a lot of things that I still do not know but I know one thing for sure -- I will never be that guy who owns 100 percent of nothing.
Related Video: Why the Founder of Nicepipes Turned Down a $100,000 Deal on Shark Tank
