Communications Strategists, Inc.'s Blog

I hear this question on a regular basis and although I might not be 100% accurate, for me this question has always come from someone who has never started a new company. They may have done exceptionally well in their current or previous job, understand the market and had a phenomenal P&L responsibility. They may have been an excellent manager or c-level employee.

I then look at them and ask the following questions: do you have a family? Typically the answer is yes.  Do you own your home? The answer again is usually yes; I ask if the savings they have accrued can fund the company and keep the family in a financially stable position for at least 1 year?  The answer is typically no or a dead stare. I leave this as the last question because I know for the most part, the answer.
I remember starting my first company and saying, “Why am I doing this, making someone else all this money for a salary and commission. Why not start my own company and keep the profit rather than giving it away to someone else.”   This was the same company that paid my check every week, paid all the corporate expenses like heat, water, electric, credit card charges, air fare, expenses while travelling, trade show expenses, collateral material, business cards, pens on my desk, in and out box….etc. I took all of that for granted, I go to work for a company, and they pay the expenses. What’s the big deal?

After I explain my first experience, I have had quite a few head nods in agreement. I then ask what they did at their job. Many times sales, so we will focus on sales,  typically, based on the company, they would probably be defined as mid to upper level sales. I then ask them how they see the company functioning, and based on previous experience, they give me pretty close to what they know. I then ask how they are going to pay for the next 36 months of expenses. Yes I know that is high but it has happened and it gets peoples attention. I have been involved with several Biotech and technical firms that have taken far more than 36 months to get to positive cash flow, but once attained it is enormous!

Back to our new entrepreneur.  The funding issue is usually responded to with either, I will get a loan or investors, or mortgage the house. Don’t mortgage the house unless you are single with no children. I hope everyone succeeds, but if for some reason you don’t,(and if you are saying I WON’T FAIL at this point, stop reading, your doomed, and the possibility for failure is always a potential), you don’t want to lose your house and possibly family over starting a job. If you get a loan from a bank and it doesn’t work, as long as it wasn’t a secured loan, you can always file for a bankruptcy where a house motgage you cannot include that in a bankruptcy as easily based on the way you are filing (I am not an attorney and you would need to confirm this in your state, region. . .etc., to be certain).

Funding is critical, being prepared for the angel networks to the major institutions is even more critical. Know your business inside and out, have a “value” be it some sort of IP (Intellectual Property) or uniqueness that makes it difficult for the competition to duplicate. If you are just going to sell products in the same industry you are currently involved, consider building the business to be sold. Before you take on an effort in the same industry, and if you have a non-compete (did you sign any papers with the company when you started? get a copy of all papers), go to your attorney to verify the terms and that you can legally compete.

Now that I have your attention and you are sufficiently panicked, my next article will pick up with what do we do to prepare and then part 3 will discuss reality versus desire. And, I don’t know, I might add a part 4 and 5, I could easily write a book designed for the new entrepreneur so I will let you know when I am done with the parts. If you have any specifics you want addressed, please email me @ neil@commstratinc.com