This was my final class, and it was amazingly practical and educational. There were so many lessons I decided to divide it into several entries. Enjoy!
People are messy. Nowhere in business is this more true than in entrepreneurship. Most people starting their own businesses have absolutely no idea what they are doing–particularly when it comes to managing their money–which is why so many of them fail.
That said, some business owners manage to stay in business long enough to learn from their mistakes. Some get lucky. Some do it all perfectly, but the market doesn’t materialize or something else goes wrong. One of the best things you can do, though, is start from a position of knowledge.
An entrepreneurial business is just a business, and entrepreneurial finance is just finance; the lessons from every previous MBA-A-Day still apply. The difference is that entrepreneurs deal with the types of questions that have already been answered by an established company.
There aren’t right or wrong answers, but there are better and worse ones.
Why do you want to start a business? Why you? Why now?
It’s ok if the answer is not “to get rich.” You might have a desire to start something that is socially beneficial. You might feel that you have a really unique product or service idea that others would like. Maybe you just want to be your own boss.
People think about entrepreneurial finance backwards. They say, “Where can I get money to do a business?” They should say, “What business can I do with the money I will be able to get?”
If you are looking for money to start your business, ask yourself: would YOU give you money?
Are you fundable?
Do you have a good idea, and the expertise to manage it, and the industry contacts to make it happen? Is the market ready for it, and will you be able to sell it, and will you be able to make enough money from it to cover your costs? Will you make enough money from it to be able to satisfy your investors, who are risking their money with you?
Can you do your idea with the money you’ll be able to raise?
If you don’t know anything about running a factory, you are going to have an impossible task of getting somebody to invest the millions of dollars that building and running a factory will require.
In this case, you are not fundable. Don’t do the business. Do something else.
If you know a lot about fixing cars, and you have worked for various garages for years, and you own many of your own tools, and you have saved some of your own money for a lease on a building, you might be able to convince someone to invest in you for the rest of the equipment. In that case, you are much more fundable.
What is your outcome? What is your exit?
Do you plan to run the venture as a family operation? Do you want to sell it to a larger company? Do you want to do an IPO?
You need to know this. How you plan to get out is one of the most important parts of starting a business. You aren’t going to be around forever. Who takes care of the customers? Who takes care of the employees? How do the investors get a return on their investment?
How do you get a return on your investment? Keep in mind that many entrepreneurs don’t take a salary in the early years of a business.
Finally, if things don’t go as swimmingly as you plan, you need to figure out a way to recoup some of your losses and move on to the next startup. It might take a few tries to get it right.