I recently had the pleasure of attending #grow16, an annual conference put on by friends at @inc. The conference is like an entrepreneurial love fest, with 800 entrepreneurs running around for a few days. For me, it's like a buzz, and I hardly sleep as I inhale and exhale all of the energy around me.

 

At the conference, I participated in two terrific panels, called Where Is the Money. And after taking some time to process the dialogue and debate on each panel, an old aged rule became crystal clear to me: more money isn't always the solution.

 

In some ways, raising money or borrowing money is a crux: everyone somehow seems to think that more money will solve all things. And sometimes the process of hunting for the money, or looking for the wrong amount of money becomes the focus and dominates everything.

 

In our loan brokerage, one of the first questions we always ask entrepreneurs in how much money they are looking for, and why. Sometimes their answers feel intuitive and logical, and other times they seem completely out of whack.

 

I want to share two stories with you.

 

Once a woman called who had invented a horse shampoo, and now she wanted to produce it and sell it. She had spent the only $40,000 she had to write a business plan for a $5,000,000 raise. She wanted to buy a building, buy the equipment, hire a management team, and start production.

 

The problem: she didn't have a customer.

 

Whoever took her $40,000 for her business plan should be ashamed of themselves. This woman needed a customer, a purchase order, and a co-packing facility to get started.

She needed to prove her concept before anyone would give her that kind of money. She lost her shirt and her dream raising the money instead of building her business.

 

Another customer once called, desperately worried that they weren't going to be able to make payroll in two weeks.

 

What happened? I asked.

 

All of a sudden, out of nowhere their direct marketing conversions had plunged.

I quickly advised him that while he had a payroll issue, if he didn't address the core problem--the band-aid he was looking for would peel off in two weeks and be back in full force.

Yes, he needed to worry about payroll. But if he didn't solve the root of his problem, he should be thinking about laying off people or expense reduction quickly.
Think long and hard about how much money you are looking for, and why. Ask yourself tough questions about what you plan to do with it, and how much you might be able to get done with a lot less. Remember that every day spent worrying about raising money is a day less working on building your business.

Published on: May 29, 2016
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