Last week, during one of those days, when everything seemed ‘just not worth it’ I wondered aloud to a colleague if I should “give it all up and start off on my own”. This trifle remark set off a very interesting conversation. As it progressed, I knew I had found a topic for my next post!
What do I do and where do I find the money to do it?
A good reason why I haven’t started off on my own, yet, is because I have no BHAI (Big Hairy Audacious & Interesting) idea. Beside that, I have seen a few friends and acquaintances who stopped almost as quickly as they started off! I suspect successful entrepreneurs are a rare breed largely because they face a maze of obstacles including having trouble finding investors. A reason why someone wants to become an entrepreneur is because (s)he has the hunger for creating a viable business, and more importantly, has a strong need to be independent, flexible and in control of his/her destiny. This naturally generates tensions with potential investors who need predictability and accountability, which often creates problems. Referring to the fantastic research work of Nicholas Nassim Taleb doesn’t seem to impress them at all!! There is a philosophical and cultural mismatch to start with.
My colleague had some interesting thoughts here. He didn’t think that entrepreneurs should be obsessed with raising capital from venture capitalists (VCs). Rather, his advice is to avoid overfunding the company from the start, because it’s a recipe for disaster. Overfunding, I reminded him, comes after funding per se! Where is the money to set off with?! More seriously, is it a good idea for entrepreneurs to look for financing through tapping into other sources such as clients or suppliers, before giving away any equity. Probably tough but safer than VCs.
Isn’t it true that many entrepreneurs are kicked out/bought out of their own company in a year following a major investment round? Truth be told, the nature of deals is changing. Investors are no longer just investing in the guys with a BHAI new idea. They’re doing things like joining with boutique investment banks to craft new sorts of financings, or hooking up with entrepreneurs to buy portions of companies and spinning them out. Also, VCs pose the serious danger of strangling new companies by depriving them of cash in their early years. Some investors say they prefer to invest in businesses that can be profitable quickly. Others feel this is short-sighted, and runs the risk of forcing these BHAI ideas away from building bold new platforms.
Hasn’t someone done this already?
Another reason why I haven’t started off – yet – is (the lack of) first-mover advantage. My colleague thought I should just set up a company, identify a niche market and secure my place in the eco-system, pretty much like the Blue Ocean strategy concept – don’t be where everyone else is. Easier said than done was my response. When ideas get BHAI, they often require an enormous amount of capital. Some VCs fund a company to last it 24 months, enough for about 18 months of execution and then six months to look for capital. Why are VCs forcing entrepreneurs to build a company so cheaply that the company isn’t being given a chance to build a real business? By focusing on getting a company to profitability too early, investors may be stunting their ability to build real platforms. Startups are being forced to recognize they won’t get funding and are curtailing their ambitions. In the bargain, fewer real businesses are getting built.
Another challenge that most of my entrepreneur friends face, is to have the right people with the right mindset working with them. Sure, such people who are smart enough and open-minded to adapt to market needs can come up with solutions that are faster to generate revenue. Question is, how do YOU get THEM? The answer to this question can be that you have a really BHAI idea. BHAI ideas not just help entrepreneurial companies gain an advantage over larger firms, they also help in stoking the proverbial ‘fire-in-the-belly’ – for the entrepreneur and his team. In my opinion, the real competitive advantage that entrepreneurs have to secure, is to focus on what money cannot buy; whatever money can buy, is a commodity. Here I cite e-Bay and Google as examples of companies which were not the first to move in their space, and were still able to achieve phenomenal success despite not being “new”.
The BHAI conversation went on for a while and was, infact, quite animated. In the end we decided that I was not against the idea of entrepreneurs teaming up with investors, (I need money to start off, dont I?) but it is important that both sides understand their own strengths and weaknesses – and anticipate conflict. What’s BHAI to you may not be BHAI to him! Most financiers are very keen at investing in innovation and fast-growing companies. Entrepreneurs, on the other hand, are very good at starting up businesses, but are quite bad at mastering the capitalistic game.
If I had a BHAI dream, I would set out to be an entrepreneur…..BHAI, BHAI!