Raising Money, Part 2

In the podcast series, Seth Godin’s Startup School, Seth Godin gave a guided tour to a group of highly-motivated early-stage entrepreneurs on some of the questions they will have to dig deep and ask themselves while they build up their business. Here are my takeaways from various topics discussed in the podcast episodes.

  • When someone invests in our businesses, they would like to get their money back as soon as possible. The question is how are we going to give them the money back? The most popular method is that we give that person stock or equity in our company. However, that approach might not be in the best interest of you or the company. When someone owns a part of our company, there is a pressure to sell the company quickly so that investors can recoup their investments. If our goal is not to sell the company fast, do not raise money using that approach.
  • Another way to pay people back is to structure the deal that so the investors will be first in line to get paid by the profit generated from the business. After the on-going proceeds pay off the investment/loan, the investors go away, and we end up running the whole show without any investor looking over our shoulders. This is similar to selling future cash flow for an immediate fund to get the project started. One of the goals, when we are raising money, is to get rid of the person who gave you the money as soon as possible.
  • For a business-to-business selling, the tribe is rarely about the corporation. It is about the person who is making the decision. We need to build trust by showing how other people in a similar organizational position put their trust in our product or service. When the decision-maker is aware of our references and their work, it becomes much easier to establish the trust and creditability because we have eliminated all the risks. The hard part is not making the product or service. The hard part is how do we construct the story for the people, so the story resonates and projects an instant trust that we are going to solve the problem.
  • The whole world is waiting to connect with us. When we are the entrepreneurs or the impresarios, what we are doing is to put on a show. It is a show where we made something happened because it was not happening before we got there. It should be a show where we care about the customer and care about the work we are going to do. We are going to commit to it even when it is not working at times.
  • There are hundreds and thousands of tribes in America with people who are eager to connect around something. The person who is making the most of this trend is the person who runs the show. They are not making anything except connections. When we sell, we are an actor and playing a role. The role is to persuade our customers that we are right, or if we are not right, to give us a chance to explain to how we could do it better.
  • The hard part of a business is to come up with a story that matches our customers’ worldview with what we are going to build. Why it’s important? Why are we the one to build it? Why is it likely to work? What is scarce and what is hard? Why it is extremely important that this happened and it happened now. If we cannot do that, we need to revisit and think hard about our ideas.