So,You Want To Become An Entrepreneur?

A common error made by today’s entrepreneur is that they see the gold at the end of the rainbow without actually searching or mining the gold. “You need financial muscle before taking the leap of faith. The Journey to full blown entrepreneurship is not for babies!”

I have come across scenarios like this:

The entrepreneur identifies an opportunity or thinks up an idea. He / She then realizes that in order for the idea to manifest it needs resources (money). So, they take the leap of faith and start brainstorming the ultimate business plan that will give them access to funding instantly. After composing the business plan with solid financial projections, they then suit up and its of to the bank or it’s off to the investors to discuss this wonderful plan they have and or are planning.

  Scenario #1

The banker/investor reads the proposal. He or she stands up and says, I love it, I absolutely love it! We will wire the R1 million / R250 000.00 by next week Friday. You jump for joy patiently waiting the funds to come in on a Friday. Friday comes then boom! the SMS is in: FNB ??: deposit: R250 000.00. You jump for joy then start planning on how the business is going to operate. You even get excited to buy stock and equipment for the business. Monday morning comes and you open your doors and then boom! There’s a queue of customers waiting for your product or service!

Pause

What’s wrong with this movie?

Well let me start by saying that, wasn’t that too easy for it to play out this way? And the answer is obviously, yes!

You didn’t put enough time into the business. Secondly the investor is either very gullible or you have proved yourself time and time again to your investor or it is a loving uncle, aunt or parent or maybe you’re from the Upper Class or Old Money.  Why I am saying this?

It shouldn’t be that easy. Firstly, we didn’t test the business. We should have tested the business first before even looking for money. When we test the business, we need to run it for at least six months to 2 years with our “own money!” To see if it is even profitable or not! Yes! Our own money even if we are starting out small and intend on getting big. How is someone going to invest you if haven’t invested in yourself? This is why each business plan has a Historical Financial Records attached to see if you have actually invested in your business and for how many years. Projected financial records are equally important but here is the kicker, how do you project financial records without a historical account.

Your CV is also attached to the Business Plan cause the investor/banker wants to see you’re experience. Experience in the potential industry that is being desired.

Thirdly, are you willing to put up collateral of your own into the business. Are willing to put up a house, car or long-term investments (own money) upfront as collateral. Just in case the business goes tits up. There’s a high probability of an entity going tits up within the first 3 to 5 years!

Henceforth, I recommend applying the three ingredients before we even approach the investor/banker.

Scenario # 2

The banker/investor reads the business plan/proposal and says to you. We will get back to you! A week turns to month and a month turns to a year and year becomes two years. All along the banker has been blowing smoke up your bum. Telling that the funds will almost be released but they never seem to be released. This is the true and real scenario of the average entrepreneur without the three critical ingredients.

Scenario #1 sounds like scenario from a science fiction movie! It does happen but only if one of the following holds true: divine intervention by God – a true miracle, you were born to Old Money or the Upper Class, and last but not least, you have family or parents that truly believe in you. In all likely hood your family might also want to see a track record of the project you are trying to establish or accomplish.

If you are the average scenario #2 character, it means you haven’t truly thought through the process and you don’t have the three critical ingredients. So, what are the three critical ingredients?

Ingredient #1: “Own Money”: even if you’re own money is small, start by investing bit by bit until it gets to a resourceful size. Alternatively, you could start small if the product or service is not too costly to produce or to make. Own Money is the best ingredient to the recipe because when you invest something that is yours, your heart is in it and you would be very cautious not to be reckless with funds you’re investing. It also teaches you discipline and accountability. Own Money also instills the process of organic growth.

Organic growth is better than leveraged growth (growth through debt or equity). When you grow your entity organically no shareholder or creditor is coming with terms and conditions. Your “own money” comes with great liberty but also great responsibility.  

Ingredient #2: “Experience”: have a start! Don’t talk about it, be about! You need to generate that energy towards the business. You would also be gaining experience in terms of the intricacies of the business. Is they an actual market for the business? The only way to find out if supply meets demand is to actually go into business and test it out. How would you know if the business works if you haven’t tested or sold any products or services? Run the entity for at least 6 months to 2 years. Six months might be even too short to establish a brand you might need a longer time period.

Another form of experience is to get an actual job working for the competitor or for a similar business model. This form of experience because you lose nothing at all. You get to see the components and intricacies of the entity and draw up you desired blueprint. At the same time, you get paid for it!

This is then the component you add to your CV that will show the investor/banker your experience in the industry. When the investor/banker knows you have experience and I mean profitable experience it becomes easier to convince them to invest in you.  

Ingredient #3: “Historical Financial Records”: this is the umbilical cord for ingredient #2. Unfortunately keeping financial records is what 90% of entrepreneurs shy away from. It is only but months to minutes to disaster if we are unaware of how our entity is performing. What is the position in terms of our assets, equity and liabilities? How liquid is our business in terms of cash inflows and outflows? Accounting is indeed the skeleton and the nutrition of the business. It truly is a miracle how entities operate without having a clue what the nature of their profit is? or what accruals and payables are outstanding? or whether they will be able to afford the rental next month?

It is when we truly combine these 3 ingredients do, we truly become hardcore entrepreneurs. It would be gambling to operate without these three components.