“On Funding a Business” Wiser Next Week for Business #4

Gold investment concept. Illustration of growing bar chart.

Wiser Next Week for Business is a follow up to the original Wiser Next Week. Similar to its predecessor, it takes the knowledge of many and condenses it into one categorized book. This time, rather than focusing on the reader’s personal life, the matters of work and career are discussed in greater detail.

Wiser Next Week for Business will be released chapter by chapter.

“You have to work on the business first before it works for you.” -Idowu Koyenikan

Why it Matters: The old saying that there is no such thing as a free lunch is true. It doesn’t matter how great of an idea you have if you never have the economic means of getting it off the ground. Cash is kings, it is the fuel that drives all businesses from startups to multinational conglomerates.

Finding Backers and Understanding How to Serve Them

No matter who you are or what walk of life you choose, you need two kinds of friends in your life. The first kind is one you can call when something good happens, and you need someone who will be excited for you. Not a false excitement veiling envy, but a real excitement. You need someone who will actually be more excited for you than if it had happened to him. The second kind of friend is somebody you can call when things go horribly wrong—when your life’s on the line and you only have one phone call. Who is it going to be?1 In other words, you need someone who will edge you on when things are going your way and someone who’s got your back when things go wrong. You need good people in your corner before being able to serve others.

One of the most important rules for finding people willing to back your offer is to look for a market of one. Narrow down one person who fits your definition as the ideal prospect perfectly and build towards fulfilling their needs. You only need one investor to say yes, so if dozens of others reject you, ignore them.2 Focus on what you can control, the one person that says yes is the building block on which you can do something to move things in your favor. Study the early adopters. What are their wants, needs and desires? How can you serve them? How can you make your interactions with the ideal customer a win-win situation?

Once you’ve found the archetype you intend to serve, the next step is to understand how a business frames itself to serve its target audience. Roughly defined, a business is a repeatable process that:

  1. Creates and delivers something of value.
  2. That other people want or need.
  3. At a price they’re willing to pay.
  4. In a way that satisfies the customer’s needs and expectations.
  5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation.

     Put in another way, all businesses consist of five interdependent processes:

  1. Value Creation. Discovering what people need or want, then create it.
  2. Marketing. Attracting attention and building demand for what you’ve created.
  3. Sales. Turning prospective customers into paying customers.
  4. Value Delivery. Giving your customers what you’ve promised and ensuring that they’re satisfied.
  5. Finance. Bring in enough money to keep going and make your effort worthwhile.

     These principles are true no matter whether it is a mom and pop shop or a billion-dollar multinational. Take any one of these five factors away, and you no longer have a business—you have something else. A venture that doesn’t create value for others is a hobby. A venture that doesn’t attract attention is a flop. A venture that doesn’t sell the value it creates is a nonprofit. A venture that doesn’t deliver what it promises is a scam. A venture that doesn’t bring in enough money to keep operating will inevitably close.

     If you can clearly define how these processes work in a business, you will have a solid understanding of the company as well as the marketplace it operates in. Take Coca Cola for example, the company provides soft drinks, everyone knows that they have to drink water in some way shape or form to survive. As a secondary need, humans are predisposed to seek out sweets because it is so rare in nature and therefore highly valuable to our primitive senses. Coke soft drinks are also priced at a very affordable price so that most everyday people are economically able to purchase the soft drink.  People have come to expect a cheap, quality soft drink from Coca Cola that tastes practically the same whether you buy it in Pittsburg, Pennsylvania or Beijing, China. Because of its utility, branding, low-cost and many other factors, Coke has become a very profitable company.

This is a very bare bones example of how these five interdependent processes of business work, niche it down to how you see fit in its application to your own life. And if you’re thinking of starting a business, outlining how these processes work in your specific instance is a great place to start as it’ll give you a solid course of action to act upon.3

It Doesn’t Take a Rocket Scientist

Don’t let yourself get discouraged if your parents didn’t instill a sense of entrepreneurship in you. Thanks to the internet, even people who just show entrepreneurial tendencies or play with the thought of it and are not pure-bred entrepreneurs can compete in the marketplace. Even if you who were drilled with the standard narrative of going to school, get good grades, go to college and work at a desk for 40 years, and couldn’t bear to work for someone else, can have their own, thriving business. The road might be a little different and maybe longer, but it doesn’t disqualify you from the race. The major barriers to entry have been broken down with the advent of the internet, now it’s up to you to make the most out of this opportunity.

     Without even realizing it, you might be involved in various sorts of business ventures through your daily habits, hobbies or routines that may seem completely unrelated. There may be “diamonds in the rough” all around you if you’d only have the foresight to see them. A key difference between having a hobby and a viable business idea is whether other people are willing to pay for what you do. A hobby means you partake in an activity because you enjoy it as a recreation, while a business is an activity that produces something that other people are willing to trade their time and energy for. Put another way, people care about what you do in a business. Once you find something you can do that other people care about, that’s an opportunity. And when you have one opportunity, one diamond, seize it with everything you have. For example, Virgin founder Richard Branson did not start his mail order business until his magazine business was a success. Only when that took off did he start opening record stores. And so on. So keep your eyes open, but don’t let yourself be fooled into thinking you can do many things at once. One adventure at a time, that’s how you build an empire.

     Practice seeing profits where most people don’t even see business. Work on how to turn a quagmire into profit, and the only way you can do that is by being incredibly creative.

For example, when Richard Branson was stranded on a remote island, he rented out a plane to get back to where he came from and sold tickets for the vacant seats. The fact of the matter is that most people could not have thought of renting a plane and selling the seats when they were stuck on that remote island, because they wouldn’t have been creative enough by the time they were in the situation. You can’t make up ideas like this on the spot, unless you’ve practiced the creativity you need way before even getting there. Therefore, practice using your creative muscles, every single day.

Not All Intentions Are Created Equal

Always scrutinize people’s motives when offered help. While in an ideal world everyone would, “do to others as they would want done to them,” the reality is that we don’t live in an ideal world. Small acts such as asking if you’re okay after falling down are displays of human decency, a stranger offering to foot your restaurant bill is entirely another. Venture investors for instance are sometimes called vulture investors for a reason. After you sell a piece of your business to them, they take control of it, therefore taking control of you. They not only get to tell you what to do, but worse, if you don’t deliver, you can even be pushed out of your own company. 

For example, Steve Jobs needed funds to get Apple’s newest product, the Apple II off the ground, so he and his partner Steve Wozniak brought in investors who wound up controlling a majority of Apple’s board seats. Being an up and coming company with cashflow problems they saw little choice in the matter. Steve Jobs was brilliant, but in the early 1980s Apple’s board felt he was too young and temperamental to run Apple. The Board of Directors and Jobs had vastly different goals on where they think Apple should be headed. Additionally, Job’s initial projects such as the Macintosh was seen as a failure. As a result in May 1985, the then Apple executive decided to reorganize Apple, and proposed a plan to the board that would remove Jobs from the Macintosh group and put him in charge of “New Product Development.” This move would effectively render Jobs powerless within Apple. In response Steve Jobs declared he would be leaving Apple. The Board declined his resignation and asked him to reconsider. The Board had all the votes necessary to go ahead with the plan. A few months later, on September 17, 1985, Jobs turned in a letter of resignation to the Apple Board. Five additional senior Apple employees also resigned and joined Jobs in his new venture.

    Growing organically takes time. It’s not as fancy as going from $0 to $1 million in evaluation with a few investments, but it pays off in the long run. Learn to be okay with this slow, organic growth, as it’s much more stable and profitable. You will also not have to justify or explain your actions to anyone and no one can tell you what to do with your business. Things stay within your control as you grow along with the organization.

The first few people you hire will make or break your company. It is vital to hire people who are just as motivated as you to get stuff done and move the company forward in the same direction you want, not just collect their salary, do average work and go home. You won’t be able to micromanage every aspect of your team’s activities. Therefore, you need people you can count on to do their very best without needing someone to breath down their neck. If you restrict yourself to hiring really motivated people who share the same dreams and aspirations as you do, you’ll automatically grow slowly without risking the need to sell your soul to venture capitalists. Additionally, this will allow all of your employees to develop the customer-centric approach your business needs to have to thrive and not just survive.4

Take a stand for something you believe in and then pick a fight with a competitor.

If you’re going to start a business, do it right. Build something you really want to see in the world. Something you can be incredibly proud of, something you want to take a stand for, something worth fighting for. For example, can you imagine walking into a McDonald’s and hearing the slogan “We believe in fresh food?” Fat chance. Everyone knows the burgers sometimes sit there to ferment for hours so that the beef and bread are properly dried and hard.

If you really believe in fresh food, like Vinnie’s Sub Shop in Chicago, you’ll probably do what they do, and close up shop in the afternoon, because the bread will just never be as fresh as it was in the morning. Now that’s something to be proud of. It’s building a brand and a reputation, not just churning out profits that gets a business off the ground.5

Takeaway: Understand that no one cares about what you want, only what’s in it for them. There are opportunities everywhere, they take the form of people being unsatisfied with the current product/service that is being offered (or unavailable). It’s up to you to have the foresight to see it and have the creativity to capitalize on it. Your creativity will allow you to spot opportunities that have been overlooked and overlooked opportunities attract the funds needed to get your venture off the ground. 

      1-2. “The Hard Thing about Hard Things” Ben Horowitz

      3. “The Personal MBA: A World-Class Business Education” Josh Kaufman

      4. “How to Win the Sport of Business” Mark Cuban

      5. “Rework” David Heinemeier

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