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Sustainable Businesses Are Cash-Neutral. Say No to Family Money

To survive, you'll need a cash-flow that's reliable and based on merit. You need to experience the risk of losing everything.
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Some people are just made to be entrepreneurs. It’s genetic and they can't be anything but. Many say they knew early on that they couldn’t work for someone else. They were horrible employees.

Others became entrepreneurs because they were led down that path by circumstances, fate, and fortune. (It also helps to have started a few businesses when you're young.) And it’s definitely formative to have been fired--especially more than once--from a job you cared about.

Interestingly, your family dynamics matter more now, and in different ways than you may imagine. Sometimes that’s a good thing. Other times not so much.

Parents help out whether your project has merit or not.

The latest stream of new start-ups is being funded, at least in part, by the grand gestures of helicopter parents who can’t quite cut the cord and who want to give their kids one last boost in the world.

So they provide comfort in the form of continuing financial support for Junior’s latest venture, regardless of the merits.

It's an age-old dilemma. Should parents spend their time preparing their kids for the path and then set them off on their way, or should they prepare the path for their kids, even though they often get in the way?

Here’s a hint. If your “job” has you living someone else’s fantasy, and is funded by friends and family, there’s simply no good that can come of it. You’ll all eventually learn that money disappears much faster than it can be raised.

Sustainability is both financial and emotional.

It's useful to recognize, since the majority of financial assistance comes from moms, not dads, that parental relationships are loaded. Most entrepreneurs say their moms pumped them up with cash and unconditional love, while their relationships with their dads were strained or competitive. Neither is a good beginning for figuring out how to start a business and how to rely on your own wits to keep it going.

Cut the parental strings and you're on your way to running your business like a grown-up.

Keeping family money out of your business is also practical. Because unless you can build a sustainable cash-neutral business that doesn't require regular dollar infusions from relatives or investors, you’re just prolonging your business’s inevitable demise.

Let yourself experience the urgency of risk.

Most experienced entrepreneurs will tell you that being comfortable and secure in your shoes is a curse worse than almost any other, especially when you’re getting started. But working without a safety net is part of the process. You need to be a little scared, plenty hungry, and always wondering about making payroll.

Remember that your employees are making sacrifices to go on this ride with you. Don't disappoint them by being shortsighted or by skipping the risk-taking part of building a business. If they realize, one day, that there aren’t enough life vests to go around--because you made the mistake of leaning on your parents--you're going to have to deal with some pretty unhappy people (including yourself).

If you really want to motivate your employees and have them stick with you, don't keep one foot in the boat and one foot safely on shore. That not the kind of commitment that's going to inspire anyone.

IMAGE: Getty
Last updated: Aug 27, 2013

HOWARD TULLMAN | Columnist

Howard Tullman is the CEO of 1871 in Chicago where, at the moment, 260 digital startups are building their businesses every day. He is also the general managing partner of G2T3V, LLC and Chicago High Tech Investors – both early-stage venture funds; a member of Mayor Emanuel’s ChicagoNEXT Innovation Council; and Governor Quinn’s Illinois Innovation Council. He is an adviser to many technology businesses and an adjunct professor at the Kellogg Graduate School of Management. @tullman

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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