The Funding Herd is Still Standing in Line…. So Just Reverse the Process!!
Google the word “funding” and you can search through pages of service providers that connect you with accredited capital providers. Every service provider has their own pitch as to why you should choose that site to list your request. The most common being the total number of capital providers in their stable. So why is it so hard to obtain that illusive funding?
The most obvious answer that I continue to hear is angels and V.C’s are just hesitant to fund anything in this current market, having to allocate capital back to other investments during this recession. The truth is even in optimal market conditions according to “The Center for Venture Research at the University of New Hampshire” only 3 out of 10 deals in circulation are even considered by accredited investors, with the most common reason being insufficient growth potential (ie. lack of potential to create enough revenue)
What if you reverse the traditional process of raising capital by finding a way to create revenue or secure contracts before seeking funding? You are probably thinking that is a no-brainier, but follow me for a minute here and I will explain.
Even the smallest contract or potential interest in your product or service from a credible client may be all you need to open the door with an investor. Even better, a contract from a credible client can be factored off their credit for instant capital.
This is where some of you will say what about the IT company that needs R&D funding? There are of course these specific entities that can’t even get off the ground without funding, but the majority of start-ups don’t fall into this category. In most cases a limited product, service or application can be used to test the market while creating a positive revenue stream. Just remember Bill Gates created the first computer applications without funding, and even worse (without the internet.)
So why does the herd seek financing before sales? Because we are conditioned to seek funding before we even think about scaling a company into a better position to raise capital. Human nature (and bravado) leads us to believe our un-tested idea is going to work, and all we need is the capital to get it off the ground. In the mean time 1000′s of subscriptions will be bought to chase that illicit dream, leaving most with a lighter wallet and a great elevator pitch.
My point is if you spend all your time developing business plans, pro forma financial projections, and elevator pitches to potential investors, you may be taking your eye off the ball. Even worse already loosing money. Start your business by creating a demand for your product or service (no matter how small), and then look for funding.
Use this simple process, and remember what your time is worth. Would it be utilized more efficiently getting a limited version of your product or service to market while developing a revenue stream? Or standing in line with the herd?
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