Looking mainly at the American market, more and more start-ups seeking investment for their venture. It seems almost like without investment, you can’t start a business.
This trend is slowly moving towards Europe as well. But it takes more time in Europe because of the legal and tax restrictions on investments in businesses. But as more and more American companies starting to look at the European market, I believe it’s just a matter of time until this will have a major impact in the European market as well.
But what does this mean for entrepreneurs?
I guess it depends on the reason for starting your business. If you invite investors to put their money into your business, you know that they will only do this if they make a profit in return. Most investors are looking for a return of their investment within a timeframe of 2-5 years. For you, as a startup, this means you will be under pressure to deliver until then.
Most businesses will never make that. For investors, this means 2 out of 3 businesses fail to return a profit or even the initial investment. As a result, the 3rd business has to cover the costs. That’s why they are looking for profit margins in the 40-60% area. This is a lot of profit to make in such a short period. Imaging how much there is left for the entrepreneur doing all the work.
Another critical point is the entrepreneur’s freedom to develop the business as he sees fit. Once you have investors in your business, you have partners, and the pressure is on. You might be quite happy with just covering your cost for the first couple of years to give you the time to learn the business and to develop it the way you like. But with investors on board, this will most likely not be enough. This can lead to false decisions and extreme risk-taking and often ends with the business going down.
Unless your reason for starting the business is purely based on making lots of money whatever way possible, having investors who only see the money side is counter-productive.
Most businesses I work with are in it because they love what they do and see their business as their way to live the life they want. There is no need to speed things up as they are not planning to stop what they love doing anytime soon. They might look for ways to make it more secure, to find the right business model, to grow and develop in business and personally. That’s why they come to me in the first place.
I have not come across a business that requires investment to work. Those who do look for a way to shorten the time it would typically take to build the business up.
But why would you do that if you enjoy your business and the great things you can do for your customers.
The only reason I would see for investment is for growing your business. That requires a business to exist, established and well structured — not a start-up with a crooked business model based on nothing else but assumptions.
If you are a start-up, I challenge you to create a business and not to buy your business. If you don’t know how, put your entrepreneurial hat on and come up with some ideas on how you could make it work. Enjoy the process to create something from the ground up. This is what entrepreneurship is about.
If you struggle with ideas or in finding your right business model, talk to us. I am sure we can point you in the right direction.
Enjoy the ride 🙂