The grass is always greener on the other side. If only I had…. and my business would be great.
Getting investment in your business is one of these "grass is greener" things, particularly since the primetime UK TV show Dragons Den. Many business owners believe that if they get some investment and the skills of the investor on board then this will be a shortcut to success, but this rarely happens. Often investors may bring a useful "black book" of contacts that can open doors, but they are unlikely to understand your business enough to advice you in any detail about its direction.
It's also worth a moment to consider the motivation of business owners and investors. As the business owner you started up your business because you wanted to create a business that suited you and at the same time make you some (a lot of) money. Everyone's motivations are different, I like my businesses to be moral, look after employees as well as being profitable. As a business owner it would be nice if one day someone came along and offered you a nice bag of money for your business, but for most owners their primary objective is to build a business that makes them plenty of money, if they sell it that would be a bonus.
For the majority of investors they are looking to buy in at one price and sell out for another. Profit becomes the only focus, and driving towards an exit strategy. Unless, as the business owner, you are a serial entrepreneur then I think that you will find this an uncomfortable process, and something that moves away from your ideal business.
I took on investors in my business after about four years of trading. We offered a small percentage of the company for £100K that, at the time, we thought was needed. I can honestly say that the next couple of years were some of the lowest moments of my business career as I started to have to answer for everything I was doing in monthly board meetings with the investors. The great enthusiasm that I had for running a business soon drained replaced by a feeling like when I was fifteen again being questioned by my Dad why I was late in last night. The business was no longer mine. I just answered to it.
Despite the financial investment, over the next three years my business bumped along the bottom until a fortunate large contract win that was paid in advance allowed me the opportunity to buy out the investors. We gambled the finances of the business to do this, but it was like the shackles were thrown off and we had a new attitude of self belief and a necessity to succeed. From that moment on the business grew and grew from a seven person company to a multimillion pound business.
I don't for a second blame the investors for the lack of success, it was my naivety. I believed that the financial investment would drive us forward, in fact it just provided a safety net which combines with the feeling of lack of ownership reduced our "hunger" to succeed.
I had great expectations of what difference two highly successful businessmen investors would make. The investors tried very hard to help, but when it comes down to it, they don’t work in the business and only understand your market superficially. They opened some doors with their contacts, but they never told me the magic success bullet that perhaps I was naively looking for.
Would I take on investors again? Well I wouldn't discount it, but I would have lower expectations and I would beg borrow or steal the required money first before giving away equity. - Short Answer, No if I could avoid it.
Having said all of this I learned some very important lessons from our investors that without I'm sure I would not have been so successful. Being forced by the investors to record / report financial details and sales pipeline information in a targeted and formal way started so our new investors could get a "picture" of the business. We never stopped this discipline and doing it was critical in growing the business profitably.
Don't be put off taking investors, but don't take on investment too early in your business and don't overvalue the individual investor's ability to help you.
If you found this useful please leave some comments below.