Small Business Loans: The Tortoise and the Hare

It isn’t always about money. Granted, accessing capital to grow is an important part of building a successful small business, but leveraging a business’ future can sometimes lead to its premature downfall. There are many factors that play a part in determining whether small businesses thrive  in even the best economic conditions. There are also far too many potentially successful small businesses that end up folding in the best conditions.

Although there isn’t one simple answer to identify who is going to be the successful company and who might struggle, there is a trend in how many entrepreneurs describe their businesses and how I think it negatively impacts the long-term viability of others.

Far too many entrepreneurs spend too much time either chasing investor money or debt to take their business to a level where they can sell it off or take it public. Now there’s nothing fundamentally wrong with building a company looking for a lucrative exit—unless it’s the only thing your company does.

Too often we hear a common story from startup entrepreneurs who are looking for capital to ramp up their new business. They have a solid business plan, a good marketing strategy, but don’t have any capital. Furthermore, poor credit history makes it difficult for any lender to take their business seriously. In other words, they could not get a small business loan.

Many times it’s suggested to regroup and look at starting on a smaller scale and taking the next year to get your “financial feet” under you and resuscitate your credit. This can mean scaling back projections for your business.

Start With The Fundamentals

There is a great book titled, Tuned In by Craig Stull, Phil Meyers, and David Meerman Scott. The authors suggest that “tuned in” products are more successful in the market than products that aren’t. Their definition of what they consider a “tuned in” product is a great place for any entrepreneur to start.

1. Is there a pervasive need in the market?
2. Does your product or service answer that need?
3. Are your potential customers willing to pay something to address the need?
4. Will they pay for your product to address that need?

Does your product or service fill a need your potential customers are willing to pay something to address? If so, you have a product that has the potential to do extremely well whether or not you get cash from an investor or a huge bank loan.

I recently read a story, told by Ty Kiisel,  that is applicable to this topic and I feel it will help make the point.

“Years ago, when photographers first started shooting digitally, I had a small company that did prepress work preparing photographs for printing. Although there was a need among professional photographers for the work, there was a reluctance to pay highly skilled digital artists to do the work. My business addressed a pervasive need, but not a need the majority of photographers were willing to really pay for. As a result, I eventually had to shut my doors and let my three artists go.”

“I thought money would solve my problem and leveraged my personal credit to what eventually became an exercise in prolonging the inevitable. The Tuned In authors would probably suggest that my business wasn’t ‘tuned in’ and they’d be right. It wasn’t really a lack of capital that killed my business, among other things, I didn’t have a product the market wanted at a price they were willing to pay. A small business loan would likely have given me time to ‘tune in’ what we were doing, but in hindsight, I have to admit, it really wasn’t the money.”

Television shows like Shark Tank and articles we all read about successful high-tech entrepreneurs have us believing that chasing money will help us take our business to the next level, when in reality, spending time on the fundamentals will help us build a healthy business that will attract capital if and when we need it. An actuary who buys insurance companies is quoted saying, “I never buy a business looking to be purchased. I look for healthy businesses with strong fundamentals and make the owners an offer they can’t refuse.”

I’m convinced there’s a lot to learn from the tortoise. Studies have shown it’s slow and steady that really wins the race.