If the mantra for real estate is "location, location, location," the mantra for someone starting a business would be "cash, cash, cash." Cash talks, and bull walks, as they say. Which reminds me of a gambling phrase, "splitting a pair." In blackjack, that's when you get two of the same numbered cards and you can turn one hand into two. For every gambler who has dug him- or herself out of a hole with that technique, unfortunately, there are many more who just sink in deeper. Much, much deeper. Take Ken Zangara, who racked up a $250,000 gambling debt trying to save Zangara Dodge, his New Mexico auto dealership.
The key to launching a successful venture is to avoid the Zangara strategy as much as possible. Take gambling out of the equation and you'll increase your odds of success. The rules below apply to anyone who is trying to get a loan from a bank, an investment from a venture capital firm or even an angel to toss some Benjamins your way. For more, check out FastCompany.com for a conversation with Beth Seidenberg of venture capital firm Kleiner Perkins Caufield & Byers.
-- DO get an A+ team. Great leadership is needed to survive the ups and downs (often mostly downs) that are the inevitable result of starting a new business. Have the principal players been tested? Do they quickly adapt to changing market conditions? Are they willing to put their heart and soul into the business? Are they really committed to doing what it takes?
-- DO find a large, fast-growing, under-served market. It's possible to make money serving a small, slow-growing and over-served market, but not with a lot of investors will be interested in throwing piles of money at it. Investors want to see a bigger payday if they're going to contribute their cash to the venture. This doesn't mean that the venture should be all things to all people, but simply that it should have in its sights an audience that can be profitably served.
-- DO have reasonable financing. A venture capitalist once told me that entrepreneurs always underestimate the cash that it will take to launch a business. Always. Because entrepreneurs are classically glass-half-full kinds of people, they tend to look on the brighter side. But money is the grease that makes everything possible. So rather than cutting down your cash needs to make the business look easier to launch, you're better off adding extra cash to deal with unexpected circumstances.
-- DON'T be mercenaries. I've talked to people launching a business who were true missionaries and I've talked to many who are mercenaries. One simple way to tell the difference is that mercenaries are much quicker to use the phrase "exit strategy." That's usually how they'll sell the business so they can cash out. Many businesses have been successfully launched by mercenaries, but I'd take a missionary every time.
Investors don't want to pull a Zangara with their money. Use these tips to make your venture less of a gamble.
OTHER PEOPLE'S MONEY: EXECUTIVE SUMMARY
-- DO get an A+ team.
-- DO find a large, fast-growing, under-served market.
-- DO have reasonable financing.
-- DON'T be mercenaries.
LIST OF THE WEEK
Worst Boss Habits: According to Employees
-- Lack of open, honest communication, 33 percent.
-- Micromanaging employees, 18 percent.
-- Failure to recognize employee achievements, 15 percent.
-- Fear of job loss, 10 percent.
-- None of these, 14 percent. (When are they hiring?)
"When you're trying to raise an investment for your venture, every 'no' gets you closer to a 'yes' only if you know why you've been rejected." -- Maya Elhalal