How to Cure Entrepreneurial Brain Freeze

Some entrepreneurs spend months trying to raise more money than they actually need to achieve proof of concept.  Many get stuck on the grand vision of their company’s future instead of deploying the resources and assets at their disposal.  I call this entrepreneurial brain freeze.  When I started my first venture, it took me six months to get a meeting with angel investors.  I was so excited that I spent 72 hours straight marathon writing a business plan and financial forecast in order to convince the investors why I needed $2 million to start my company.

I showed up in a fancy suit and tie, and the first thing that the investors did was rip up my forecast and asked me what I could do with just $200,000.  I was initially shocked that they would lowball me like that, but in the end, realized they were right.  This experience taught me, in retrospect, that if I had just tried to raise $200,000 instead of $2 million months earlier, I would have reached the starting line much faster.  I had to cure my own case of entrepreneurial brain freeze.

At my loan-advisory office, we speak with business owners who show the common symptoms of brain freeze: they’re stuck within the confines of their company vision and unwilling to stray from their buttoned up business plans.  Before discussing funding options, we first ask them what they need the money for and why.  The reality is that usually there is a way to meet their objectives with much less money.

The business owner might be foregoing short-term profits by seeking less startup capital, but they are moving commerce sooner, and that is what’s important.  The best proof of a viable business is active commerce, not funding.

A few weeks ago, I met an entrepreneur who wanted to start a golf simulator business.  He wanted to raise money for his own facility, with two owned or leased machines, and also wanted more capital to market his business.  At the time of the call, though, he didn’t even have a proof of concept, no customers on the horizon and yet wanted to borrow or raise a couple of hundred thousand dollars in equity.  I had to take a step back with this entrepreneur instead of pushing him toward a loan that he would later regret.  A better option was to partner with local golf stores by installing his simulators in their shops.  By piggybacking off of the store’s existing customer base, the entrepreneur was drastically cutting his marketing dollars while also achieving a proof of concept in exchange for profit sharing with the existing golf store.

Instead of seeking $500,000 to launch his business, the entrepreneur only needed $50,000 to get started.  This is a much more reasonable goal.

If you’re trying to borrow money before you’ve gotten one customer, you’re likely going to give away more equity than you have to, or it’s going to cost you way too much to borrow money.  There can be huge benefit in shrinking a grandiose vision, shaking off the entrepreneurial brain freeze and proceeding with calculated baby steps rather than rushing a new business the the finish line.

A Loan Broker’s Responsibility to Small Business

Helping small businesses get into bank loan financing should be the driving force for brokers.

At my loan brokerage office, our mission is clear–we want every company we work with to get to a point where they are bankable through an SBA-backed loan or another traditional bank loan.  If a company is considered “bankable “, that is, they meet all of the criteria necessary to receive financing through an FDIC-insured bank, they’ve earned the right to get the cheapest loans that will allow them the best opportunities to grow and create jobs.

This being said, we’re not naive to think that every company is bankable: in fact, most are not.

In cases when we work with these non-bankable companies, our driving force is always to help them get to the point where their chances of being approved for a traditional loan are greatest.  While small businesses work towards this goal, it’s likely that they will pay more for capital through alternative loans.  However, we don’t want them to get stuck in the land mines of alternative lending or be forced into endless renewals.  We guide them and help them maneuver the lending landscape, identifying the lenders who will work with them and celebrate when they graduate to a bank loan.

We attack this challenge on a micro and macro level.  On a micro level, we treat each company and entrepreneur we work with care and concern for the longevity of their business, and do our very best to help them find financing that works for their unique company.  We also speak out for the need of reform and transparency within the alternative lending space.  These high-cost loans as a last resort recommendation for small business owners.

On a macro level, we have created tools like Banking Grades which has evolved to Entrepreneur Bank Search to help companies we don’t have the opportunity to help.

I also personally take my position as an advocate for small businesses within the lending industry as a serious endeavor.  My published work, in addition to speaking engagements at conventions and lobbying our government, is all aimed at helping create a path to bankability for entrepreneurs.

It’s time to step up as loan brokers and accept the responsibility that we have to act on behalf of entrepreneurs in order to help them receive smart money for their businesses.  Brokers who act with their best interests in mind at the expense of small business owners are doing a great disservice to the small business industry and the economy as a whole.

As a loan broker, it’s vitally important that we always treat borrowed money for a client as a means to an end.  The “end” for some businesses will be to pay off a loan.  In many cases, however, the “end” is becoming bankable and entering into an affordable, FDIC-insured bank loan.

 

MultiFunding Turns 5

Dear Friends,
On January 1, in addition to celebrating the New Year, MultiFunding will turn five.
On one hand, I want to slow down, take a breathe and celebrate. After all, it is an accomplishment. I want to jump up and down with the team and discuss the victories along the way towards this milestone.
And on the other hand, the five-year mark is just another day on the long journey of building a business. I’m sure it won’t really feel any different.
As so many of us know, being an entrepreneur is tough and can be extremely lonely. I can’t really compare the last five years to anything I’ve ever been through or done before. Those who haven’t traveled this journey simply wouldn’t understand it.
Entrepreneurs are a club of sorts. When we get together, we understand each other. Some people dream about being an entrepreneur one day-but fantasizing and doing are very different things.
In my mind, entrepreneurs are heroes and our entire economy is driven by the success of those who choose to join this club. As I’ve fully realized how tough it is to build a company over the past few years, I’ve become more resolute and determined than ever to help entrepreneurs connect with the resources they need to help feel safe and protected on their journey to success.
Can you think of a brand or a company that truly stands for helping entrepreneurs and small-business owners? Some like to make that promise-but if you dig under the covers you will find lots of concerns.
My focus for MultiFunding, as we continue to grow, is to really, truly help other entrepreneurs. We will treat other entrepreneurs as we would hope to be treated, and consider every client we work with to be the hero that they are.
For those of you who have joined us and helped us in our adventure over the past five years, I am forever grateful. And to those who want to be a part of the mission going forward, we welcome you with open arms.
From our family to yours, we wish you a Happy Holiday season and a prosperous and healthy 2015.
Best,
Ami & The Team

The Missing Ingredient in “Shark Tank”

Adding a lender to the panel of sharks would give the show more depth and educational value.

In the past week’s episode of Shark Tank, Curt Campbell, an entrepreneur from the tiny town of Fish Creek, Wisconsin pitched his company www.oilerie.com to the sharks for an investment.

In his pitch, Mr. Campbell talked about putting it all on the line for his company, and told stories of having his power and cable shut off at earlier stages in the business.

While Mark Cuban did make an investment, I thought his response to Mr. Campbell was genuine.  He thanked him for telling his story of his ups and downs candidly, and spoke about how he taught more to budding entrepreneurs watching the show then any of the sharks could.

As I reflect on Mr. Cuban’s comments–it reaffirmed my thoughts that there is a key component missing in the show–one of the sharks should be a lender, not an investor.

After all, every time an entrepreneur needs money for their business–they should consider debt and equity options.  Sometimes the choice is very black and white–because in some cases there isn’t a lender or an investor who would do a particular deal.  But in plenty of cases, the choice is gray, and this should be highlighted on Shark Tank.

I would love to see a lender on the show, sitting side-by-side with investors, asking the entrepreneur questions about their cash flow, collateral, and credit.  Entrepreneurs should know that these issues matter.  Additionally, I would like to see the sharks sharpen their value proposition to an entrepreneur, when and if there is a viable lending option on the table.

It would be fascinating to watch an entrepreneur have to make a decision in front of millions of watchers between taking a loan and keeping control of their company but have to risk their house a collateral or taking an investment.  That’s a far tougher decision between giving “x” percent of your company up to on shark or “y” to another.

It might even be juicier to watch an entrepreneur decide between a 6 percent interest loan that requires them to put their house on the line versus a 30 percent loan that does not.  Or, it could be compelling to watch an entrepreneur realize they have forfeited a loan option because they previously took on an investor who is not willing to personally guarantee a loan.

These debates would add a compelling component to the show, add to its drama, as well as its educational value.  I hope the producers consider it.

Are You a Tortoise or a Hare Entrepreneur? (It Matters)

The entrepreneurial ecosystem is dotted with ambitious go-getters itching to follow in the footsteps of the Facebooks and Googles of the world–creating fast-growing, fast-flying companies with large numbers of early adopters. I like to call these hopefuls hare entrepreneurs, as the race to produce and succeed is done at a fast and furious pace. But, the truth is, the majority of successful entrepreneurs are tortoise entrepreneurs–those who are growing businesses slowly and steadily. 

Entrepreneurs who fit in the tortoise category are most often also building lifestyle businesses, or, businesses that VC-backed tech entrepreneurs patronizingly deem slow and small. In reality, lifestyle businesses afford business owners the luxury of maintaining life outside of work, instead of allowing a fast-growth company to devour every semblance of work-life balance. Lifestyle businesses grow more organically and steadily while meeting the need of some consumer cohort, rather than rushing partnerships and working harder just to satisfy demanding backers who want to see next rounds and rising valuations.

For every sexy, new startup with a business plan that pitches to angel investors and venture capitalists based on soaring company valuations, growth assumptions, and income projections, there are hundreds of startups trudging through the early stages of starting a business with borrowed money from friends and family, savings and small business financing. Most companies take years to mature, not months. Most small businesses show meager profits the first year, not millions in sales.

Hare entrepreneurs who start successful companies with meteoric growth need to be seen as the exception, not the norm. The reality is that most startups don’t have the opportunity to raise venture capital and need education and advice on where to look for money to grow their companies.

To that end, this column is for the tortoise entrepreneurs of the world. Tortoises need financing, too, even if the process isn’t as glamorous or riveting as the hares would have you believe. I’ll examine the different financing options available to tortoises at different stages of a company’s journey, like SBA loans, factoring, and purchase order financing, and wade through the pitfalls and the triumphs of each. Small business owners increase their chances of success by understanding the types of loans available and which loans make sense for their particular businesses.

As a tortoise entrepreneur myself, I intimately understand the complexities of steady business growth and small business borrowing. This is my approach too. While tortoise entrepreneurs aren’t seen as the obvious icons and heroes of American culture, they are responsible for groundbreaking products, necessary services, and millions of jobs.

BankingGrades.com is up and running

After a few months of beta testing, we’re thrilled to take our website www.bankinggrades.com out of beta and open it up to the small business community.

The site serves a simple purpose – to help small business owners find banks in their communities who are most likely to lend to them.

We hope it will save entrepreneurs a lot of frustration and aggravation, and help them get to the right lenders who can allow them to focus on growing their businesses.

Small business owners and entrepreneurs are America’s job creators, and we’re simply throwing too many stumbling blocks in front of them to get the capital they need.

Bankinggrades.com is a tool that we initially developed internally to help us identify good banks for small business.  And now we’ve decided to open up the tool to anyone to use.

It’s our small way of saying Thank You to America’s small business owners and entrepreneurs.

Thanks to our sponsors, Hana SBA, The Receivables Exchange, and IOU Central for supporting this effort. 

Please try our www.bankinggrades.com and let us know what you think.

Five Elements of a Successful Business That Loan Underwriters Often Pass Over

When applying for a loan, small business owners and loan officers trade hundreds of pieces of paper, and dozens of numbers and ratios are crunched.  I would like to suggest five subjective elements of the process that often get overlooked, and which, in my opinion, are critical elements of a successful company.

Would, and have,  the entrepreneur lend themselves the money?

In our work at MultiFunding, one of the first questions we ask an entrepreneur is “would you lend yourself this money and are you willing to bet your house?”  If there is a moment of hesitation, it’s time to dig and understand why.  Sometimes, it’s a sign of a business in trouble.  Other times it’s an indication of a plan that has not been properly thought out.  Or perhaps it’s an indication of an entrepreneur who doesn’t believe in himself and/or doesn’t have the backing of hi family. 

Whatever the reason might be, if you’re an entrepreneur looking for money, it’s really smart to ask the question “would you lend yourself this money.”  If the answer is no, be ready to ask yourself why?

Do customers of the business recommend the product or service to their friends?

A critical element of a successful business is happy customers – and we don’t think loan underwriters talk to customers nearly enough as part of their due diligence.  It’s fairly simple.  If customers love a product or service, and actively tell their friends about it, that’s usually a great sign of a successful business.  If customers churn and burn in a business, there is an imminent problem on the horizon.  These issues often get forgotten in the underwriting ratios that get crunched.

Are the employees of the company happy, engaged, and committed?

Do the employees of a company love coming to work?  Are team members engaged and happy?  What is the employee turnover?  Would employees jump out of a window to help a company succeed or would they prefer to jump out of a window instead of coming to work?  A happy team is a critical element of a successful company, and it is one that usually never comes up in the loan process.

Does the small entrepreneur have a mentor or mentors who they rely on and bounce ideas off of?

Being an entrepreneur is a lonely and frightening adventure.  Every good entrepreneur needs and deserves a good mentor.  I would love to see loan officers ask to talk to the mentor.  How well does the entrepreneur take advice?  Does he actively like to bounce ideas around?  How flexible and nimble is he in his thinking?  These are critical elements in a world that constantly changes.

With a snap of the fingers can the entrepreneur produce a current financial report about their business that they can explain and understand?

Entrepreneurs who run their businesses without understanding the fundamentals of the numbers are like drivers driving around town with their eyes blindfolded.  Good, accurate and timely accounting is a critical component of success that should not be overlooked.

 I would bet my money on almost any company that met the five criteria above.  Your ideas and thoughts are most welcome.

 

What the Jobs Act and Shark Tank Have in Common

Tonight, I am flying cross country and it’s one of those rare opportunities to think.  I have been trying to put down on paper for a few hours why I generally have a visceral negative reaction to the Jobs Act which got signed into law today.  I hope I have got my message down, but that will be up to you to decide.

Today President Obama was joined by Republicans, Democrats and entrepreneurs (including several friends of mine) to sign the Jobs Act into law.  The legislation makes it easier for entrepreneurs to raise money from everyday Americans, hopefully creating a whole new spigot of capital.

The President touted this legislation as a tool that might help the next Twitter or Facebook get off the ground.  In his remarks, he expounded upon the myth of American entrepreneurship.  Think big, get investors, shoot for the stars, and anyone can conquer the world.

This is the myth of entrepreneurship.  Have a billion dollar idea.  Write a business plan that will show you will have at least $100 million of revenue in three years.  Get investors.  Have rounds of capital.  Go public.  Make magic happen.

I think that this myth explains American’s fascination with the show Shark Tank where entrepreneurs go before a group of big name investors and try to sell their souls so that they will invest in their companies.

I think that my visceral negative reaction to the Jobs Act and Shark Tank is that we’re sending the wrong message to entrepreneurs and our young people.  I would like to see just as much pride in starting a restaurant, your own franchise, or your own manufacturing or distribution business.  These are just a few examples.

In my opinion, the last thing these main street entrepreneurs need is crowdfunding (passed in the Jobs Act today).   The first thing an entrepreneur should do is try to figure out how to execute their business model without selling off shares to investors.   After all, the investors never go away in their company. 

We should be encouraging our entrepreneurs to bootstrap their ventures.  We should be doing everything in our power to open up lines of credit and loans at reasonable prices to small business owners.  We should be doubling down on efforts like SCORE and/or the SBDCs to provide mentorship.  We should look for creative ways to improve the accounting and books of small business owners. 

I would love to see our media tell the stories of main street business owners and what they’ve done to survive the recession.  These should be our heroes, ahead of the founders of Twitter or Facebook. 

Yesterday, I want to visit one of my favorite (and first) clients.  She runs a day care center.  We fought like hell for 11 months to get her an SBA loan (after she was declined by Citibank) and now she has deployed the funds to double the size of her facility.  Kids were smiling, and about a dozen new jobs have been created.  Together, we sat and debated her next expansion plans, where she will hopefully double in size again.

In my mind, the owner of this day care center, like tens of millions of other main street entrepreneurs, are American heroes.  It is highly unlikely (in my opinion) that the Jobs Act and crowdfunding will do anything to help them.  It’s the furthest thing from their minds. 

The Jobs Act, like Shark Tank will likely do more to expand the myth of American entrepreneurship instead of focusing on the hard work of helping and encouraging main street small business owners.  While it might all be good for Silicon Valley, I don’t think it will help Main Street.  And that is disappointing to me.

The 10 Day Pay Project. Get involved!

A few weeks ago, I was honored to be invited to speak at a TEDx New Wall Street conference about the future of banking.  For those of you who are no’t familiar with it, TED is an idea sharing community around the world and I invite you to check out their website.

 

At the Tedx Conference, I presented a fairly simple but also potentially transformative idea called “10 Day Pay” that could help millions of small businesses.  I presented these ideas at TED because it’s a good idea, but it’s one that I don’’t have the time, resources, and energy to do on my own.  I put the idea out to the TED community to see if anyone wanted to help with it and I’m putting it out to you as well. This idea will also be discussed in my chapter in the upcoming book about #FixYoungAmerica.

 

 The idea is pretty simple. Big Corporations are sitting on tons of cash these days. Meanwhile, millions of small businesses who service these big corporations are cash strapped and struggling to survive.   And as a result of the recession, the Big Guys are taking longer and longer to pay the Small Guys, which is forcing them into very expensive factoring agreements.

 

The “10 Day Pay” idea is to encourage Big Businesses to pay all of their small vendors within 10 days. “10 Day Pay” would encompass a website that would rate big businesses based on their treatment of small business vendors. Big businesses could adopt the 10 Day Pay Pledge, promising to pay their vendors within ten days. It would be a positive marketing campaign for big businesses about how they are helping small business and participating wouldn’t affect their profitability (they still have to pay the bill) and would hopefully generate new loyal customers for them.  Meanwhile, small business owners could grow and expand and sleep at night.

 

10 Day Pay was well received at TED, and I have enjoyed many conversations since the conference about the idea.  A few nights ago, I went to buy the URL that was available just before TED and somebody had already bought it.  I was thrilled.  If you would like to join in, please give me a holler –and if you grabbed the URL, I would love to hear from you as well. 

 

As I reflect on my Silicon Valley experience I think there is a lesson for all of us. Let’’s stop waiting for Washington to drive change to help the economy.  Instead, let’’s develop ideas of our own that don’ ’t require Washington, and rally together to make them happen.  This is how I believe we will rebuild our country.