Do you really need an investor? Should you really invest?
Investors debate for more than 50 years what is a good investment and what should they look for. The top 10 VC firms obviously found out and the knowledge is trickling down slowly but steadily to the smaller VC firms — not yet to the hundreds of thousands of individual investors and business angels.
Entrepreneurs on the other side try to find the best way to attract investors and through accelerators, mentors pitch coaches and co-working spaces it trickles through the entrepreneurs community. Unfortunately it hasn’t quite made it to its fullest extend because ALL entrepreneurs believe they need an investor to start and rather fake their story — costing them time, resources and in the end their business.
So if you’re looking to start a business, there are really only two concerns that you have to think about. Only two:
- A business that serves you and your family. Do you want to start a business to be your own boss, make more money and enjoy the prestige to run your own company, while you obviously serve your customers well. OR
- A business that serves others. Do you have a bold idea, a grand vision how you make the world a better place and do not care much how much money you can make yourself and how painful it may be.
In Maslow’s pyramid of needs, Case No 1 is somewhere in the middle (covering safety, belonging and esteem) and case No.2 is on its top (self actuation).
Investors focus almost exclusively on businesses that serve others and scalability is a key to do that successfully — the risk / reward model is compelling and they can make tons of money. For businesses that primarily serves you, no investor is actually needed as you should grow organically.
Why I think the above distinction is so important:
1) Startup entrepreneurs of all kinds make that fatal assumption that they need an investor to start their business.
2) Since most are more likely to start a small business, but believe they need an investor, they fake to build a gigonomic enterprise making gazillion dollars and attracting more people than we have on the planet, becoming the next uberRbnbFacebook of the business they are doing. Obviously failure is pre-programmed.
3) When instead entrepreneurs start by determining who they really are and what they want to do, they can look for the appropriate support:
In Case 1 entrepreneurs will be looking for local support in their community, chamber of commerce, local business associations, find small business owner who may help with tips and so forth. They most important lesson to learn however is to start a business with no external investor — and other local entrepreneurs may help them do so.
In Case 2 entrepreneurs will be looking for mentors, incubators, accelerators, business angels, VCs, industry experts, international connections and others to help pull of the big idea. And also they will learn to build their first iteration of product, their minimum viable product (MVP) and initial traction with no external investor. They need to learn that those who get $10 Million funding with an idea drawn on a napkin are only those who made a fortune before — not first time entrepreneurs.
In other words there is no business that gets a lot of venture money right out of the gate, but the growth funding of bold ideas require external investors, the local business that is of absolutely no less value to the local society does not.
Summary
Investors who understand the above paradigm have a significantly higher chance to see a good return on investment than those who gamble on all levels of businesses.
Entrepreneurs who are true to themselves and know what they want from the business have a much higher chance to succeed and find the most important supporters right at the beginning rather than trying and failing and then blame the fact that they have not getting the funding they need.
