“Would it be possible to introduce me to a few of the regional bankers?” “Why won’t those angel investors return my calls/emails/knocks on their office doors?” These inquiries are often asked by many first and second and third… time start-up founders and while listening, from which I often develop ear aches. It was around year two when one of the best things that ever happened to me during my entrepreneurial career occurred – a Senior VP of a local bank turned down my request for a unsecured line of credit. That particular year was super transitional for me as a start-up/Money Machine founder and was the culmination of the entrepreneurial escapades of my first couple of years attempting to manage a tech start-up and the source of many of the upcoming topics within this blog.
So my point is? The content of the previous post from 07.30.2015 gave a few individuals some entrepreneurial heart-burn but why was this the case? If you happened to be a start-up founder you possibly developed heart-burn due to the fact that you have become enamored with the tales of the “one technical wizard against the world” who while just starting his firm possesses an idea so outstandingly great that a superly wealthy venture type provides her a gazillion dollars simply for this idea. News flash – The probability is 99.99999999999999% that for 99.99999999999999% of Money Machines and start-ups
THIS JUST AIN’T GONNA HAPPEN!
I see soooo many founders heavily engaged on what could be coined “The Begging Tour” where they go from pitch session to pitch session conducting presentation after presentation in an attempt to get some initial “seed” funding. A few ironies of all of these efforts include
- The individuals to whom the founders are pitching often do not possess the problem(s) for which the Money Machine’s service or product provides a solution ie the pitchees are not potential customers.
- If there is an interest on the part of the potential investor, she or he will inevitably ask the founder(s) the proverbial start-up question – “So, what’s your traction?” translated “How many customers do you currently have?”
This particular process quickly becomes a study in convolution with the founders soon running out of a launching runway due to the fact that they spend far too much of their time chasing seed investment monies which rarely materialize instead of working towards developing a better product while seeking to identify, understand and more fully obtain the only thing that really matters to an early and latter staged Money Machine –
CUSTOMERS
The funny part about all of this is that when a Money Machine has customers the probability is stupidly high that a founder will not have to seek out investors but investors of all types will seek him/her out. It is almost like being an athletic prospect playing at a small/rural high school or college. There was a time when the stage on which one performed really mattered but not in today’s Youtube/super-hyper, social, sharing climate. If you have any type of athletic skills, the coaches, schools and teams will find you. Likewise, if you have a Money Machine with paying customers, the investors will find you, so much so that some will even begin having broker types blowing up your company’s phones like a telemarketer in an attempt to determine if you are in the market to sell the entire business operation(s). BTW, It’s a trip when this happens. 8^) Simply stated, in today’s investment market, very few investments provide an investor the type of financial return as getting in early on a solid tech/maker/creative/food start-up. Now many of the readers of this post may find this fact hard to believe but please don’t take my word on this matter. Simply consult a world renowned expert on angel investing – David Rose of Gust. BTW, his book is a very good read.
The other side of this coin is that if any form of an investor is offering loads of cash as an investment in a Money Machine without customers, even if he is some form of a business sage and can clairvoyantly predict the billionaire status future of a firm’s founder, the probability is also quite high that she/he will be requesting a large, majority, ownership share of whatever type of a Money Machine that has been created and guess who often ends up navigating this particular type of entrepreneurial ship – that’s right, definitely NOT YOU nor YOUR CO-FOUNDER(S).
The short message is this – that for a start-up of any type but especially for a Money Machine, conversations, strategies, design & development, etc all start, end and are all in between about
YOU, the start-up founder(s) and YOUR CUSTOMERS
quod erat demonstrandum or Q.E.D. Please note that a few individuals such as Professor Lynn Stout have gone as far as to refer to current and modern concept of shareholder value as simply a “myth.” Her book – The Shareholder Value Myth is an excellent and enlightening read.
Some may be curious as to what happened after my nascent Money Machine and me were denied that line of credit a number of year ago. Well, initially I was mad as fire, started pouting and whining while asking questions similar to those that now are the source of my aching ears. Its was during this time that a junior banker trainee pulled me aside and gave me the following advice. Advice that I still use today. He said “If you want the senior people to take you seriously this is what you need to do.
- Build up your customer base
- Collect cash payments from aforementioned customers
- Accumulate and save cash collected from aforementioned customers into a bank account, preferably in our bank.
- Allow cash to remain in the Money Machine’s bank account(s) while the account(s) stay dormant for 12-18 months
Once this is done then revisit the Senior VP.”
I took his advice but as I began focusing upon discovering and developing customers and these customers began to exchange real money for products and services provided by my Money Machine, I noticed something quite remarkable. I noticed that the accumulation of cash allowed my Money Machine to become its own bank!
Now how did/does this process work? Well let’s discuss these particular details during a future installment of the the Musings of a Money Machine Hacker. Until next time…