Mailbag: Getting Over the Hump
Welcome to another riveting edition of ye olde mailbag. Earlier today, I received an email from a struggling entrepreneur trying to get “over the hump” of initial financing. A great idea, some early positive signs, yet endlessly “stuck” trying to raise some money.
There are so many tremendous obstacles without funds, I’ve pretty much have done everything you mentioned in this article. So far we got a first rate photographer w/o cost, a graphic artist, and a business advisor who hasn’t helped much as far as raising funds but definitely has helped in other arenas of the business growth. I can just rip my hair out about the financing. I need about another $1,000 to really move and just can’t seem to get my hands on it.
This first email didn’t really give me much to go on, so I asked the entrepreneur to clarify by answering the following questions:
1. What do you do, specifically?
2. To whom do you offer it? (Who is your customer?)
3. What pain do you solve for them? (i.e. why do they need you, or your product/service?)
The initial reply was sufficient enough for me to understand the gyst of the idea. However, it was a bit scattered (as is the case with every entrepreneur trying to explain their idea – myself included.)
I suggest that every entrepreneur come up with a solid “one-liner.” A nod to fellow Atlanta entrepreneur Warren Bare, who convinced me of the power of this approach.
A one-line pitch consists of stating “who you are”, “what you do”, “for whom”, and “why”, all in one short, concise sentence (hopefully devoid of most overblown adjectives – keep it simple.) For example:
Acme Corporation is a maker of “magic paint” for homeowners who are tired of having to paint their house every few years.
Acme Corporation (who you are) is a maker of “magic paint” (what you do) for homeowners (for whom) who are tired of having to paint their house every few years (why). By using this format, you will be able to quickly share your company’s name, your product or service, your customer base, and their pain point. Practice, practice, practice! Until it rolls off your tongue. Okay, let’s continue.
For the sake of confidentiality, I’ve removed all references to any specifics. The entrepreneur went on to say:
I am doing bootstrapping like nobody does bootstrapping. I started with the concept of three things of why I should run my own business and how. All the books on how to become a millionaire had (to me) an equal denominator: God gave us all a gift, find out what it is and use it! I’ve worked in the same line of business for 20 years, use it! What is my passion, use it! I’ve been an artist since I’ve been six years old, always usually fashion illustration and portraits. My Mom was a master seamstress and taught me how to make clothes. I’ve been in marketing and sales for the entertainment industry for 20 years designing items for celebrities for their fan clubs.
I like the passion here! It comes through when you type, and I’m sure it comes through even more in person. More importantly, you seem to have a “path.” Sometimes, passion is fueled blindly, and can lead to wayward wandering. Passion needs to be channeled, so you can focus.
There is a whole lot more to this I am just giving you a snap shot view without giving too much away. I’ve been told my business plan appears as a “sleeping giant.”
Okay, I have to call you out on this one a little bit. If you send someone an email with a two paragraph description of your business idea, and you are afraid that person will take your idea and run with it, you are being way too paranoid.
First, if your idea is that easily replicated, then you probably don’t have a very good idea, or at least not one that is going to get investors (or more importantly, customers) excited about what you are doing.
Second, I’m sure that you read my bio, and have no doubt concluded that I have absolutely no capabilities (or desires) in the industry that you are exploring. If you didn’t read my bio, and sent the information to me anyway, then you should repeatedly smack yourself in the head with a small stick and repeat the phrase “I will be more diligent and careful in the future.” :)
Don’t get hung up on “protecting your idea.” Reach out to those who can help you. Don’t be flagrantly stupid, of course. Example: sending your business plan to your biggest competitor. However, 99.9% of the population is in no shape to pursue the dreams of other people – they can’t even fulfill their own. As Guy Kawasaki says, preach what you do often, and preach it loudly!
So far I’ve established an onboard photographer at no cost as of yet, three graphic artists that I’ve have working on our logo designs with me to offer a diverse look at the industry. Once our new site is up they will get 3 percent of their 90 day monthly sales, Models I interviewed from craigslist and giving them a way to make more money, build their portfolios, get loads of exposure which they also modeled for free. I’ve been working with schools and people I’ve met during my time in the industry.
I love the tenacity and the innovation! I love stories where entrepreneurs are making things happen on their own. It is truly amazing what people will do if you just ask them! So you have some early movement – that’s good!
I am also an actress and met my business advisor during a commercial shoot. She was accompanying a friend that was a friend of Cheryl Tiegs and overheard me talking about my business. I always use every opportunity to get the word out. She actually teaches business courses at Santa Monica college helping women like myself get their businesses started. I started taking the classes which are also for free. She has been a mentor and slowly becoming a very close friend she believes extremely in the plan.
If she believes “extremely” in the plan, then target her as a potential investor. This will be the ultimate test to see how much she really believes in you. If she can’t pony up cash herself, see how far she can push others. If your advisors aren’t willing to go the distance with you, find others who will. Life is too short, and so are the lifespans of most businesses. Hell, target Cheryl Tiegs’ friend, or even Cheryl Tiegs herself. In a bootstrapping startup, everyone is a potential investor.
It’s my investors that are driving me nuts. So far one person actually did come up with $500.00. That help me get product for my shoot, hire a makeup artist, and have craft services. Being that it is an online business the start up is so inexpensive for me. A three year projection is about $4,000.00. So far all I’ve received is the $500.00 and worked it to death.
So your operating costs for three years is estimated to be $4K. Obviously, you don’t need all of that money now, so let’s focus on what you actually do need in the short term. You got the $500, which it sounds like you spent already. Earlier, in your first email, you used a figure of $1,000, as what is needed now to get you to the next level. What you are trying to do, it sounds like, is generate enough cash flow to subsidize continued growth.
My credit suffers because of a school loan of 20 years ago, when I thought I would get into show business by being a makeup artist. To find out that is like the hardest part of the industry to get into. Thank God my parents made me take secretarial courses, later on I went back to school and studied Art! It’s where I am supposed to be without a doubt! But I am really stressed about the finances.
First, if you’ve been paying your student loan regularly, and haven’t missed payments, etc., then it shouldn’t weigh too heavily against you, assuming your overall debt-to-income ratio is not heavily leaning towards debt. If it is, you need to focus on consolidating and refinancing your debt into a single payment, so you can start getting your internal house in order, as it were.
If you even have average credit, you should be able to find a loan somewhere for $4K. In the grand scheme of things, $4K is an insignificant amount of money (if we’re talking about banks, investors, etc.) It may be a lot of money to you or me, but it isn’t to those guys. If you believe in your vision, and can put together a decent plan, approach your bank.
I would think you need more than $4K to start your business, though. it doesn’t sound like you are including any salary for yourself in there. And I can’t think of too many businesses that have a mere $4K in expenses over a three year period.
I would strongly suggest that you immerse yourself in the “art of business planning” for a while. There are countless books and blog posts on the subject, so it shouldn’t be too hard to find information. Even one of those off-the-shelf business planning software packages might be of use to you.
However, let’s focus on the short-term. If you need $1,000 now, you should be able to pull that together. You pulled half of that ($500) already, so you know you can do it! Do you work a day job? Perhaps you can cut your personal expenses and save a little extra to build it up. Perhaps taking on a second job for a few months will help you augment your savings plan. Another approach would be to put together a business plan and approach an angel investor who might get excited about what you’re doing.
Worst case scenario, you can hock something. Take inventory of your assets … are you willing to part with something to chase your dream? Avoid credit card debt, however, if you can at all help it.
Another approach might be to go out and seek your “soul mate.” If you are weak in the area of business and finance, go out and find a business partner who can come in and help with those things. Give them a piece of the company, and have them run the day-to-day operational aspects of the company (including finding the appropriate investors or other financing), while you focus on being the creative spirit behind your product efforts.
Another angle might be to target a retailer or distributor who would have an interest in carrying your product. Contact a Walmart, KMart, Radio Shack, or some other retailer and send them an initial prototype along with some other information about your products. Most big retailers will have a department that handles this sort of thing, although you may need to poke around their web site (or call them) to find out more. Have them sign up and commit to some early orders from your company. Take those orders to your bank. They’ll give you your money, I promise.
Take a look at the SBA (Small Business Administration) as well. They have a great online startup kit. The SBA can be a fantastic source of financing for your small business, although again, you are probably going to need to sink some more time into business planning. The SBA startup kit has a nice little online business plan that you can use as well. Check it out.
Good luck!
Cheers.
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