If you’re seeking capital for your business, have you considered a more strategic approach?
First, consider that the four major factors driving capitalization are timing, underlying business drivers, sources of capital and the particular stage in your business development.
All that sounds simple enough, but how that information is organized and presented to a funding source is what makes or breaks a business.
Here is the next question: Do you have enough capital to surmount that inevitable cash-flow pinch that arises in virtually all companies at some point in time? If you haven’t been through your first business cash-flow crisis, be prepared for growing pains severe enough to choke the life out of a promising business concept. And be on the lookout for that first liquidity crisis, because virtually all startups experience one sooner or later.
Also keep in mind that new businesses are like ravenous wolf cubs with appetites that will lap up all available resources in order to feed that need for more capital.
Just as when a heart attack shuts off vital blood flow, a cash-flow coronary triggers a sense of desperation. When it happens, a business owner or investor will often throw caution to the wind. Whether it’s a scramble to obtain more capital or a panicked ‘pull the plug’ scenario, when that point of decision arises during a crisis, logic may not prevail.
The sunk-cost trap also ensnares entrepreneurs, often with devastating results. When the CEO of a startup sees a shrinking bank account pitifully inadequate to address a mounting stack of bills, more than likely he or she will weigh the decision with more emotion than logic. Why? It’s simple. Dreams have a way of catching you off guard and seducing you into making what often turn out to be some pretty wretched decisions.
How do you avoid the sunk-cost trap? Organize information related to capitalization in such a way that it can be viewed through the lens of strategic planning. Doing so allows a company or business venture to put both short- and long-term funding goals into the proper perspective.
When the enterprise’s directors understand and articulate to everyone involved in the business launch the actual state of the company’s capitalization, logic prevails over emotion. Bring clarity to table, and watch your idea turn into brick and mortar. When it does, then take the time to enjoy that corner office with the view!