I’m amazed by how many people start businesses with no intent of running a business. I have a standing meeting every Monday and Friday for one of my new ventures. We’ve had several meetings already and discussed accounting, taxes, expenses, infrastructure and payment distribution. And that was just the first meeting.
I’ve found that there is an entire subset of entrepreneurs who incorporate a business but then simply engage in building the illusion of a business in order to court investors. On the investor side, I’ve found that very few of them risk taking on a business with no model, team, product or revenue.
Last year I had lunch with a friend who is an investor. We discussed a hypothetical venture as a thought experiment. In our scenario, the investor offered to provide a certain level of funding for a large stake in the business. The dollar amount, while not small, was not enough to pay the salaries of the management team. So I asked for more make believe money. “I’m investing in growth and profit, not your salary, ” he said. As it turns out, his expectation was that everyone was going to invest in one way or another. His investment was financial. The management team’s investment was to take a deep pay cut. This is not uncommon and it serves to make everyone prove their level commitment to the new business.
It makes everyone put skin in the game.
It was many months later that I realized that the job of an investor isn’t to guarantee me a job. Even hypothetically.
Investors want to fund companies that can support themselves, but need an extra push. They don’t want to support companies that are simply clearinghouses for decent salaries.
This is the essential element many entrepreneurs don’t want to accept.
These are my 300 words for the day. I am Ralph M. Rivera.[line]