The less money you get the more it cost you in real terms

Small Business Investor - Small Check, Big Headache

don’t know if there is some sort of mathematical equation you can put to this, but it would certainly appear that the smaller the investor’s check, the bigger the headache they become to an entrepreneur.
You might think the opposite would be true, that smaller investors would only expect to play a minor role in the business while the larger investors would make all of the important calls. What you’ll find in practice, though, is that raising and managing small chunks of capital from small investors is incredibly laborious while the more manageable investments come from much larger investors.

Less Money = More Time

Smaller business investors seem to have disproportionately more time to invest than they have money. These are the guys who are putting $5,000 into your company and think they’re Gordon Gekko, trying to run the company like some big time investor. All this extra time that they have to manage these investments actually sucks the life out of your deal because you have to constantly manage their expectations to the nth degree of detail.
Certainly getting help from a small business investor to grow your business is a nice thing, but not if it involves being micro-managed to death over every decision. A good small business investor will understand that their role is to invest in the company, not run the company. You want their invested capital working for your business, not another pseudo manager to contend with.

Small Checks Take Longer

Raising smaller amounts of capital doesn’t translate into reducing the time it takes to get a check. In fact, sometimes the smaller amounts take more time because the people writing those checks really can’t afford to invest (read: gamble) that money to begin with.
They need to be certain of every last aspect of the deal to the point where they over-analyze the deal completely. Before you know it, you’re jumping through all of these hoops over a few thousand dollars. It’s a huge waste of time.
Even if you do manage to land these small business investors, you can be certain he’s going to be on the phone with you every 15 minutes trying to get a status update on his investment. He’s got the time, and the investment is incredibly meaningful to his overall personal wealth. You’ve become his living, breathing stock ticker that he constantly wants to see updated.

Big Kids Run Faster

Believe it or not, it actually takes just as long to raise larger amounts of capital as it does smaller amounts. That’s because the larger investors (the big kids) tend to have less time to spend on any one deal. They have lots of deals to choose from, so they have to get to the point quickly and make a decision quickly.
For an entrepreneur raising capital, this is the best thing in the world. Ideally you want as much flexibility with the capital that you raise as you can muster. You want an investor who pays attention to the important points of your growth, like monthly earnings, not daily expenses. That’s what you’re there for!
That’s why a bigger investor is usually a much better option when raising capital. They can make decisions about the investment faster, they can fill up your investment requirements faster, and they can leave you the heck alone so that you can grow the company a lot faster.

Too many cooks in the kitchen

With fewer small business investors you also overcome the problem of “too many cooks in the kitchen”. Startup companies need to make lots of decisions very quickly and decisively. The company runs a lot better as a dictatorship than a democracy. The more votes you create by adding more investors the longer the process becomes to make a decision.
You can overcome this problem by giving certain small business investors “voting rights” and giving other small business investors the right to keep quiet, but don’t kid yourself – you’re going to hear from the guys who don’t have voting rights whether you like it or not. So the best antidote is to simply have less people at the decision table.

Less is More

As you’re thinking about raising your next round of capital, don’t think in terms of lots of small business investors with a little capital – think in terms of one (or two) investors with a whole lot of capital. You don’t score any additional points for racking up the greatest number of investors. If there are any points to be scored, it’s from getting as few investors as possible in order to get your requirements fulfilled.
When growing a new business, every moment of your time has an incredible amount of value. The more time you spend placating overzealous small business investors, the less time you spend doing what you all came there to do in the first place – growing the company!

Slainte

Gordon

How will customers buy from you, and how much will they pay?

How will customers buy from you, and how much will they pay?

Outline in detail just how you plan to get your product or service out to the market. This includes describing how you’re going to manufacture your product and how you’ll deliver it. Will it be sold over the Internet or from the shelves of your own Main Street store? Will you have distribution into the “big box” retailers or use a national network of sales reps? Just remember that you must have a well-defined and achievable plan in order to get what you’re selling in front of your customers.
And what about price? It’s a critical component of success. Price your offering too high and nobody will buy your product. Price it too low and you might be leaving money on the table, or, worse yet, you might not make any money at all. Cheryl Tallman, started a company called Fresh Baby. What Cheryl did to position her products for success perfectly demonstrates the importance of appropriate pricing. She wanted to make sure that the prices for her freezable trays for fresh baby food and mother’s milk were below those of her well-known competitor Tupperware; she knew a lower price would differentiate her product. But the manufacturing cost of an initial run of 2,000 trays was relatively high. So instead of pricing her trays based on the cost of the initial manufacturing quantity, she asked her supplier how much a run of 50,000 would be.
In the higher volume, the unit price came way down.
“I took into account those extremes in price and picked a price in the middle. It was a price where I could still make money but undercut Tupperware’s pricing.” This meant Cheryl would lose money on those first 2,000, but as soon as the volume of sales increased she’d be making good profit margins overall. Cheryl’s story conveys perfectly why you should consider your customers closely. Figure out what price your customer would pay for the product and determine if you can offer better customer service than your competitors. Never, ever forget who pays the bills—your customers.



Slainte
Gordon