I recently returned from a business trip to San Francisco, where I met some firms that are blasting off, t-minus 10. They are well-funded, chock full of venture capital and equity investment. They are on their way to star-spangled stardom, but for now they have little-to-no interest in profits. They are living the Unicorn Dream.
The Dream says that you need investors to build great companies. It says all great ideas enroll in Y Combinator or another startup incubator. But I am going to ask a simple question. I did not ask it out there; they would have kicked me out. Why are people so impressed by equity funding?
"Silicon Street" focuses on growth because when you are selling equity in your company, and you are trying to convince someone to invest, you need to sell them a dream. So you sell them a dream to fund your business. Think about it from the investor's side. If you're going to invest in a business (which means you will buy equity in the business), you are hoping that the company will grow, and grow fast. Then you can sell your piece for an explosive return.
In that picture, today's financials matter very little. The first question is: "Could this business be the next unicorn? Could it be huge?"
Unicorns are a stark contrast with the reality of most Main Street businesses. Main Street companies mostly work with lenders, not investors. And while the investor buys dreams, lenders manage risk. So, to win on Main Street, you have no choice but to earn profits and build collateral, because they help get you loans. Profits help you grow. Dreams of grandeur waste time.
When a Main Street business borrows money, the lender does not care about future growth. That is too far in the uncertain future. A lender looks for security now. While they earn interest, they want certainty that their investment will survive. They need protection if the company goes south.
There is nothing wrong with that. Just a few weeks ago, on the other side of the country, the Inc. 5000 Conference brought me into contact with hundreds of business owners who have built enterprises with their hands rather than taking on venture capital or equity. For years, they invested cautiously, traded on profitability, and built up from scratch. No one owns the fruits of their labor but them.
As a small business/startup, you might be able to choose your street, but ninety-nine out of one hundred, there is not an option. You are on Main Street, so keep on walking. Don't try to be what you're not, and don't think any more or less of the guys taking another path. It is legitimate to be a Main Street Business.