During 2016 Small Business Week, we invited a group of small business owners from a variety of product types and geographical locations to chat on Periscope. They shared with us their views on how to be an effective entrepreneur in the digital age.
Daymond John is the CEO of hip-hop apparel company FUBU and a TV personality on the wildly popular Shark Tank. He’s also made a name for himself as a motivational speaker, sharing his thoughts on entrepreneurship, as he did with us during Small Business Week. Here are some of the most compelling insights from this self-made go-getter on the topic of when to court investors and when to stay small.
Daymond John, CEO of hip-hop apparel company FUBU and the host of Shark Tank
Time it right
There’s a mistaken idea in the world of entrepreneurship that a straight line exists between a good idea and a lot of funding. Yet, the period of being “broke” is often one of the most productive and useful phases of a company’s launch.
The earlier you raise investment funds, the more it costs. If you take money too early, and then grow rapidly, you could end up in trouble. As you expand, you’ll inevitably need more funding, and end up giving up your business incrementally in order to raise funds. So make your milestones small, and don’t bring in investors too early.
Successful people all have one thing in common. They have taken affordable steps.
In fact, John says, “One of the top reasons that small businesses fail is actually overfunding.“ A $100,000 loan on an amazing idea can be its downfall. It’s tempting to spend it all on a fancy website and high-powered advertising. But social media is free… and what happens if the product turns out to suck? If you can’t sell it, your $100,000 loan turns into $100,000 debt.
Know what investors want
When you are ready to seek extra funds, the first thing to consider is investor motive.
Investors show up for two reasons:
- You have a spark, and they want to pour gasoline on it.
- They have strategic objectives.
Remember, OPM doesn’t always mean ‘other people’s money.’ Sometimes it means ‘other people’s marketing’ or ‘other people’s manufacturing’—or ‘other people’s mistakes.
Make sure you know what your investor is looking for, and what they want to put into it. You might be seeing dollar signs, while they have a different idea in mind. In order to get what you want, you have to give the investor what they want.
Fact: Mentors help people succeed. Any business owner who has a mentor is already a step ahead, and that applies to funding too. Mentors help you do three things in relation to finding investment:
- They keep you focused on your goal.
- They make sure you don’t scale too quickly.
- They tell you when you’re in danger of taking money too soon.