Do you believe that entrepreneurial ventures are high risk because they are generally not well funded, or do you believe that they are not well funded because they are such high risk?This is my favorite dialogue to have with my investor and I believe the former, even though the latter is conventional wisdom.
I actually believe that a good idea is a good idea whether it is found in a garage, a small startup, a corporate think-tank, or if it’s just a new idea within a department in a traditionally run corporation.
Risk comes in a whole lot of forms. There are external risks—those things that you can’t really can’t do anything about such as geo-political, economic, competitive issues, and sabotage. Then there are also the internal risks. The internal things are generally under your control or influence.
Money alone does not reduce entrepreneurial venture risk. Risk is actually reduced by applying smart money “smartly” and reacting quickly to problems and challenges. Again, that’s true whether you are in a corporation or you are in a bootstrapped business.
Finding money that brings with it entrepreneurial experience and a great entrepreneurial network is my personal definition of smart money. It’s also my belief that smart money follows smart money. And if more financiers were willing to come in earlier and play an active role in getting new companies off the ground, I think it would indeed reduce risk for everyone.
If you’ve got money that is being invested in a business, but you don’t put enough money in early enough or you don’t spend it wisely once it has been invested, then the risk goes way up. For instance, whether you are an entrepreneurial venture or a major company, if you spend nearly 100 percent of your investment in technology and spend nothing on sales or marketing, unless the pockets are very deep, the venture will fail. When you make that mistake in a startup, even if the technology is amazing, not having sales, or in our case the funds to drive traffic, that creates risk. As a result, another investor may not want to come in and put in good money after what would be perceived as bad money. I think it then becomes a self-fulfilling, downward spiraling prophecy.
I think that investors, again, have to find good ideas and find good people to execute them. Then find every possible way to make them succeed.
BOOTSTRAP BUSINESS features best-selling authors Tom Hopkins (How to Master the Art of Selling), Jack Canfield (One Minute Manager), and John Christensen (FISH!). Chicke Fitzgerald, Hopkins, Canfield, and Christensen are joined by other well known authors and speakers, each offering time-tested strategies for success in frank and intimate interviews.
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