Starting a Business: We Need to Talk About Money

by Melissa Dylan

There’s a weird disconnect in the business world when it comes to money. Everyone knows that you need some (money) to make some (money), and that no one will lend you any (money) unless you already have some (money), and that it’s easier to get (money) when you don’t need it (money). There is a very simple piece of advice that I’ve been given time and time again; in business school, from angel investors and venture capitalists, and from books. It’s been passed down from generation to generation.

Are you ready for it? Are you ready for this very simple piece of advice on getting money to start your business? Here it is:

Ask your friends and family to give it to you.

handit_LargeWide
I’m waiting.

And if they don’t have it to give? Ask them to lend it to you.

Still waiting.

This idea is so pervasive in the mythology of startups that it’s taken as a given that a founder’s first move is to do a round of friends and family fundraising. It’s even officially called the Friends and Family Round.

The problems with this piece of advice seem so obvious that I’m surprised they need pointing out, but the concept is so ubiquitous that it appears many haven’t considered them.  Things such as:

  1. It presumes that your friends and family have money to give/lend you.
  2. It presumes that you are entitled to the money belonging to your friends and family.
  3. It presumes that your friends and family, to whose money you are entitled, think your idea is worthy of being funded (by their money).
  4. It presumes that you have friends and/or family.
No problem! Would you like one bag of cash, or two?

My entrepreneurship class once visited an Innovation Showcase, where startups pitched their ideas to swarms of angel investors.  The Showcase included a panel of experienced investors giving advice to the startup leaders in the room.  The panelists all agreed that no venture capitalist or angel investor will consider investing with you unless you’ve started your business and have profits to show them.  The way to do that, they explained, was through a Friends and Family Round.  It’s just how things are done.

At the end of the session I stood up and asked what suggestions they had for those of us who don’t have friends and/or family with deep pockets and a willingness to hand it over.  How do we go about raising money to start our business?

crickets
Crickets.

After a short period of silence, one panel member quietly suggested, “Work part time?” which answered my question exactly zero percent.*

There is also a lot of chatter about bootstrapping, or reigning in your spending while getting your company off the ground.  Don’t go out and rent that penthouse office space! You can make do working out of your garage!  This condescending advice presumes that we are idiots who aren’t already doing this. And that we have garages. (Okay, I know some of us are idiots who are doing this.  But this is basic common sense, not sage wisdom.)

Suffice it to say that advice is annoying and irrelevant and business people suck.

Moving on to trickier bits:

Talking about money makes people uncomfortable.

I think this does humankind a disservice. When we don’t talk about money in a real, tangible way we aren’t able to learn from one another’s mistakes or success stories.  Instead, we get platitudes and blanket advice that are so broad they only apply to 1% of people; the very same who don’t need it. Failing to talk about money means that those at the top literally have no concept of the struggle of those of us in the middle, let alone those at the bottom, if they wanted to hear about it to begin with.

In this spirit, I’m going to talk about money.  Specifically, mine, as I try to pull together enough funds to get this business off the ground.

It’s about to get awkward in here.

I am comfortably middle class. I have been most of my life.  I own a 4-bedroom home. Two cars. We take the occasional vacation.  My kids go to piano lessons and gymnastics. We sometimes eat out. For the past year my salary paid enough to cover our living expenses so that my husband could stay home with the kids.  I sound like I’m bragging.  This is why people don’t talk about money. We don’t want to sound like douchenozzles.

Even with this, I don’t have money of my own to start my business. Could I save it? Not any time soon. Cutting back on vacations and eating out (which we’ve now done) yields only a few thousand dollars per year.  The house is recently-purchased and has no equity. My car is a beat-up Toyota Camry that was paid off a few years ago.  My husband returned to work, but he’s switching careers and has to start at the bottom, pay-wise. It’s bad timing,  but experience has shown me that if you wait for “good” timing you may wait forever.

Let’s talk about other peoples’ money. I come from a hardworking family.  My mother is a retired public high school teacher. My dad retired as an engineer for the Department of the Defense.  Aunts, uncles, cousins, all career intellectuals, college graduates, dependable stock.  Used to earning their keep.  They save carefully and plan meticulously, and those who have retired have done so in comfort.  They day drink.  They’ve earned it.

images (4)
Messiah approved.

Non-retired family and friends are the same, largely minus the day-drinking. I don’t run in circles of business titans. In fact, most people don’t. We earn our way, we’re generous to help one another, and we don’t presume. That’s rude. We mock people with GoFundMe accounts trying to raise money for superfluous things things like honeymoons. If we can’t afford a honeymoon, we don’t take one.  If we don’t have money for a down payment on a house, we borrow it from the Federal Housing Administration, and pay it back. We pride ourselves, a little, at making our own way.

We realize that asking for money from people we love is a lot to ask, because there simply isn’t as much to go around. Asking for a slice from a small pizza is just different than asking for a slice from an entire Domino’s franchise.

The world of angel investors and serial entrepreneurs has historically been different than mine. People start businesses because they know they can get the capital. They’re well-connected and confident. Their families have money they can afford to lose. In their world, there IS no answer to the question, “What if you don’t have friends or family who can give you money?” because the question does not exist. They all own a Domino’s franchise. Doesn’t everybody?

In this way, I’m largely on my own while I launch this business, and that’s one reason I’m keeping this blog–showing the way for those of us without the safety net of our connections’ bank accounts. In other words, I’m trying to get my own pizza. If I hit a wall and find myself in a position of needing to hit up loved ones for cash, I will feel like an enormous douchenozzle.

I’ll leave you with that.  Read on for the continuing saga of me, a fabric store, and a lack of money.


*The gentleman was, I think, suggesting that one work “part time” at their startup while working full time at their real job as in don’t quit your day job, kid. But this logic isn’t applicable for the myriad of startups that require cash upfront.  You can’t work part time at a store with no inventory, and you can’t manufacture a gadget without paying a manufacturer.  Perhaps we’re meant to work part time at a regular job for cash flow until our business starts turning a profit, but that logic hits the same wall.  


Melissa Dylan is a writer and MBA who only feels meh about pizza.

 

 

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