Popular media would have us believe that unless your business is something an investor (like one of the sharks on Shark Tank) might like, it’s not a good business. The same could be true if your try to get a loan from the local bank.
Earlier this month, Wil Schroter wrote a great piece for Entrepreneur on this topic. “Investors can support ideas with capital, but they aren’t the end game,” writes Schroter. “They are a tool in the equation, but not the result. If you’re hearing ‘no’ on a regular basis and are becoming increasingly frustrated that your idea isn’t getting the attention it deserves, consider that you may be seeking validation in the wrong places.”
At the risk of exposing my “geezer-ness,” I’m going to admit that I’m not a huge fan of the “find equity capital, ramp up revenues, sell to the highest bidder, and walk away” mentality that is so prevalent in small business today. I feel like it encourages short-sighted thinking among many entrepreneurs. Because equity investors, like the sharks, are looking for opportunities where an infusion of capital will help a company exponentially grow, most investors are looking for highly scalable models and entrepreneurs who are usually looking for an exit at some date in the future.
I’ve mentioned before that I grew up in a small business family. The business my father wanted to build was one that could become his life’s work—decidedly different than building a business to flip. As a result, and because I like the dynamic in a Main Street type businesses, I tend to look at owning a business the same way he did. However depending on the audience, I might be considered a little old-fashioned.
If an investor isn’t interested in your business, it might just mean that your idea might not quickly scale easily into something huge with an influx of cash. A hardware store, florist, construction company or dry cleaner might be wonderful businesses that enable their owners to make a nice living, support their families, and might even be passed down to the next generation—but it’s unlikely an investor looking for something to flip will be interested in investing in them.
Does that mean they aren’t viable businesses? Absolutely not.
“Only one person can validate your idea: the consumer,” continues Schroter. “Anybody else, including investors, is merely hypothesizing about the value of your product. Your consumer already knows whether your idea is great or not, and that’s why the are either engaging with you or ignoring you.”
If your customers love you and your product and an investor isn’t interested, don’t allow that to discourage you. If you have a product or service that resonates with your customers, but you can’t get a banker to give you the time of day, it’s likely a problem with your credit worthiness. You may need to work on improving your credit score or otherwise make yourself a more attractive borrower.
I wish I could say there was a quick and easy way to improve your credit worthiness, but there isn’t. Unless your credit report is riddled with errors, it’s going to take some time to repair a bad score. That doesn’t mean there aren’t financing options available to business owners with less-than-perfect credit, but they won’t be low interest loans and you’ll probably have to look somewhere besides the local bank.
Investor capital or borrowed funds shouldn’t be the end game. I completely agree with Schroter when he suggests, “…customer attention is what the real end game is all about.”