A significant portion of the problem to help small and medium sized business (SME’s) find the cash they need is that too few who are able to help, are helping.
SME’s need money to:
*Get through a business hurdle
*Pay for their growth spurt
*OR modestly fund their startup strategy
It’s a simple problem to solve really. It all boils down to ‘show me the money’. But because SME’s cannot find it affordably, or timely, they lose their momentum and fail to grow.
My partners, Jason Best and Woodie Neiss, and I have witnessed it over and over again. That’s why they spent their own money to birth the JOBS Act President Obama signed into law, and why I have spent my own building their education for issuers and sme’s. Jason, Woodie and I are entrepreneurs- from different industries with different experiences, but all well seasoned. We cover the spectrum of business categories and we know well what it’s like to ‘sling the hash’ with our ‘got to find the money’ hats on. It does not matter if it is family and friends, bank loans, finance companies, angel investors, or private equity; its all the same amount of exhausting work. It’s debilitating to a business and sometimes even derails a good one. Quite simply the time it takes to ‘find the money’, can destroy people and fine businesses simply because there is very little of it available.
Bank Loans, Credit Cards, Your Credit Score & Finance Companies
Look banks are not entrepreneurial. What. So. Ever. If you have gotten money from them ‘good on ya’ but the glory of your victory is for only a fighting few. And good luck if you need a whole bunch more suddenly. I borrowed for years and it was enormously time consuming to convince them, year after year, that more profit and growth required more capital and sometimes a longer time frame to repay the debt. Especially in the creative industries- the music business. Not only did they not understand it but they had no idea what to do with it if they had to dispose of it. (The demise of your company is all they think about really.) It stopped me from growing actually. I completely retooled my business into a much smaller configuration so that it produced more income and less growth opportunity quite honestly. It simply wasn’t worth the effort to grow.
That’s because banks are 1000 percent risk adverse. And they are basically not lending. The only way they do, is through the issuance of credit cards. And that’s what a lot of us SME’s do- we borrow using a system that will charge us 18-21% (compounding) annual interest. It’s sickening really.
Lisa’s Clarinet Shop uses credit cards too. We typically borrow and pay 100% back every month, which sometimes when we have a big surge is hard to do without dipping into savings. The goal is to use current cash flow and keep everything ‘humming’ which we do 90% of the time. And for our good effort the credit card companies make even more from my business with lower risk. They make 2-3% from everyone who charges our card monthly. Those who use credit cards like I do, represent their lowest risk category with very high returns for them.
And in return for it, I choose to get miles to fly and buy my clarinets; or go anywhere I want to go. Only problem is I get no status whatsoever for it. Increasingly the airlines are treating me like a 3rd class citizen when I should get top billing for the contribution I make to the credit card who enticed me into getting 100,000 miles+ monthly for using them. Am I not considerably adding to the issuing banks bottom line? You think they would be my advocate right? They needs to start a ‘We Support Entrepreneurs’ Program and here is how…
Ring me up and I will give you a deal on a consult. I think I know how to help you sell more and become more successful.
And ironically the credit scoring industry does not see this as a positive either. They ding you for using too much of your credit even if you are able to pay 100% of it back from cash flow. I had to borrow money just to improve my credit score. How screwed up is that? It makes no sense honestly.
And then there are the Finance companies. They are largely ‘deal makers’. After my business, Lisa’s Clarinet Shop, took our a short term loan from Kabbage, I received over 400 calls from them (still getting them in fact). Kabbage filed a UCC on the loan which triggered my name being added to a ‘has received capital’ list. As an entrepreneur it was completely frustrating. I could do nothing to stop all of the calls.
However, as a result of talking to many of them, even briefly, I can see unequivocally that most of them seem like (they may not necessarily be, however) sharks and money pimps: ‘I got a deal for you Lisa. Just 3% a month and weekly payments that will screw up your accounting.’
Their ‘deals’ stink. So the only right answer is, ‘I don’t think so. Thanks for wasting my time.’ After they have tried to get you to send them 3 bank statements, and tell them details of your finances as they smooth talk you to keep going with them.
Instead of cutting them abruptly off-which was- hmm- often done (think of the volume I have been getting?), I have started asking them if they can beat 1%. It took awhile, but, it finally dawned on me it will shut them down faster- and it’s working- it does. Although it took me paying Kabbage back twice in less than 60 days of over $50,000 to get their rates down from 2.2 to 1.0 monthly. (A lot better for most than credit card interest, but also not their opening rate despite 34 years of success in business while managing at least 100K+ of cash flow monthly too for most all of it.)
And out of 400 calls- no one can touch this rate or their professionalism- just yet-despite my aggravation with receiving all those calls, thanks to them.
And while finance companies like Kabbage are serving as a bridge to making it easier than ever to gain access to (typically) expensive, but readily available cash; the future of funding for small and medium sized business needs to come from your friends and family and their extended friends and so on- from the crowd.
It’s a lot easier to get a fair deal from people who know, like and trust you then from a total stranger; no matter what any finance company tells you.
That is what has brought me to crowdfunding and to become a part of Crowdfund Capital Advisors— the harsh cold deadly reality of what a lack of ability to raise capital can do to a perfectly fine business. I have helped more businesses in the music industry be born and have watched how painful it can be with no financial support for them to grow and survive. I have watched bigger companies eat the little ones for lunch by stealing their intellectual property and using their muscle to push them aside with their aggressive marketing. How foolish to make any market smaller. The more new shoots growing off the main branch the better right? Why they do it I will never understand and it’s happened to me as well too many times. I have seen good products grow too quickly and run out of money. I have seen good, and great, ideas never get off the ground because no one would give them a chance to try.
And the most underserved market in our world are those small businesses poised for growth that have been over looked time and time again.
It’s time to no longer ignore the main street ‘little guys’. Most of us ARE the little engines that could. And as such you will be amazed by what we can do.
And if you are one of us, you know that when you cannot find the money you need to make your idea grow or live, it affects everything in your life. Every little thing.
Your belief in yourself.
Your ability to feed your family because your business is growing nicely?
It’s easy to go from ‘on a roll’ to trying to get back your mojo- simply because you cannot find anyone to give you the money. An owners/founder/co-founder’s attitude determines everything about the success or failure he or she will achieve ahead.
As a small business owner, it’s horrifying to experience the disconnect between your clear need and ability; and a institutional mindset of scarcity and safe returns to their investor pool.
As I see it, we are in between the way we use to do business and still talking about the one we need to adopt. So here is what we need to do:
It’s time we the people- we the entrepreneurs- those of us who earn over 200K- to start investing in some small companies. Companies like IAEOU and Lisa’s Clarinet Shop (neither of which are looking for investment at this time) because we are the one’s who know how to make money. We have a proven track record of success. And being surrounded by a team of proven individuals needs to count in a start up too- like IAEOU. I am sick to death of working with others who have proven experience along side of me; and STILL we are asked to ‘prove’ ourselves again, instead of being helped out financially.
Taking a risk on start ups and small established businesses, who already have a proven track record, even if they are in a completely different industry, is something investors need to learn how to do a lot more easily. If you did it once your odds are a LOT better you can do it again. Think about it.
And just because anyone chooses to be in the ‘small’ business category does not mean that all of us are not as capable.
Those who achieved grand success- and cashed out with millions of dollars are not very different at all from those like me. Those of us who decided to ‘live the dream’ and go right to the lifestyle business; and skip all that high growth ‘kill yourself’ stuff. My business flows like water and the return is enough to support pretty much anything I want in life. The only difference between me and you is I started out using my passions and values to build my venture. I wanted to find a balance between financial, emotional and social returns. It was not all about the money.
Just for the record, that’s a tall order to fill. It’s not easy. So don’t think I am a softy and clueless about what it takes to build a business just because I valued going into business for a different reason than you. Perhaps you should consider that there is something about value creation those of us, like me, can teach you? I know, its hard to ‘take it’ from a woman. But last time I checked, all that wealth you have accumulated isn’t going with you when you leave this earth. What is the purpose of having it if you don’t put it to good use; while you are still here to direct where it is to go and how well it is used? I have watched a lot of foundations and universities lose complete sight of what the legacy funds they were given were suppose to do and for whom.
Crowdfunding is not a short term solution to this deep long term problem. It is a long term solution and one that can truly solve the problem of access to capital for business owners; IF investors will recognize that the growth and strength of our future enterprises lives or dies in our hands.
As small business owners, to find that credibility and crowd support, our future lies in building online relationships and networks to support the sharing of our value as a business and the creation of more of it.
People like you and me know when we see a great idea- a great small business- a great entrepreneur. We see someone hustling and we form opinions and ideas about what we believe their odds are of success and their potential to grow. And the more we believe in them, and get to know them, the more likely we are to lend them some money to help them achieve their goals.
Our value as an entrepreneur does not come from the product or service we sell. It comes from the long term value we deliver to our customers who then become loyal advocates throughout our career for us wherever we go. The more we can help more people learn how to share their experiences online to realize the impact of doing so, the faster we will find the tribe who will be loyal in supporting us with both business and investment.
To your highest purpose and best self friends.
Do you know a woman who is making change happen in her community? Like my new facebook page, Women Making Change Happen, and tell me who she is.