The entrepreneurial spirit is alive and well in the United States. Unfortunately, 30 percent of new businesses fail within the first 2 years of launching, 50 percent fail after 5 years, and the number climbs to about 66 percent by the tenth year. Dallas Mavericks owner and mogul Mark Cuban says this is because most entrepreneurs focus on the wrong thing—raising money.
Loans and Investor Capital are Not Good for Business
Cuban gained nationwide fame as an investor on ABC's hit reality show Shark Tank, where he invests in promising startups and gives shrewd advice to aspiring entrepreneurs. Despite being the biggest "shark" on the show, Cuban said that the biggest mistake new entrepreneurs make is to believe they have to raise money.
Raising money isn't an accomplishment, it's an obligation https://t.co/QvuSYxES9K
— Mark Cuban (@mcuban) September 1, 2017
The 60-year-old businessman told Sanyin Siang, the executive director of Duke University's Coach K Center on Leadership and Ethics, that “Raising money isn't an accomplishment, it's an obligation.” To Cuban, the success of a business does not depend on big ideas or the amount of money it receives from investors. True success is in sales and “finding customers that you can really create value for and making them happy.” And once you have these happy customers, they will inform others who will also become happy customers and “that turns into a successful business.”
While the Maverick's owner is a firm believer in the value of hard work, he doesn't put much regard in raising money from investors. As a matter of fact, Cuban advises entrepreneurs that the more they “can do without raising money,” the further they'll go and the more they'll retain their company.
Cuban's view definitely has merit. Venture capitalism has a tendency to go for companies with big ideas and perceived potential instead of startups with solid business models and reliable customer bases. In short, these investors are looking for that next unicorn. In these scenarios, the ideas are ranked higher than sales because the next crucial step after a seed round is to build on that investment and develop a powerful pitch for the succeeding round until someone acquires the startup. In short, the brand's alleged potential is more important than your sales expertise or the solid customer base that you have developed.
Don't Make the Bank Your Boss
Cuban is adamant about entrepreneurs staying debt-free, particularly when they're just starting their business. He explained that once you take out a loan, you're no longer your own boss. The bank becomes your boss and every obstacle you hit, your priority will be on making sure to pay the bank instead of doing what needs to be done for your business to survive.
The serial investor told BloombergTV that "Only morons start a business on a loan." He did admit in other interviews, however, that he would turn to crowdfunding sites like Kickstarter first before he would consider looking for investors.
It's actually a good option as numerous entrepreneurs have gotten the funding they need from Kickstarter. One such company is FINEX Cast Iron Cookware Co, which raised about a quarter million in just one month on the site. However, crowdfunding sites can be challenging since you won't get any guidance and you have to deliver on what you promised.
New entrepreneurs can also join grant competitions to boost their finances. LinkedIn hosted a Seed Grant competition and winners received $2,000 for their concepts. So do some research and look for other grants that you can avail of.
You can also turn to the government for help. Every state offers grants, incentives, and various state-dispensed funding to entrepreneurs and starting companies. Tap resources like your state's Small Business Administration, the local Economic Development Council, or the Department of Agriculture.
Lastly, look to your own contacts and circle of connections. There could be someone in your own network who can either invest in you or set you up with the right people. Don't be afraid to ask around or to let people know you need help.
There are so many avenues that new entrepreneurs can turn to when it comes to funding their business. Take your chances with them first before asking for a loan or looking for venture capitalists. And if all else fails, you can always write to Mark Cuban and pitch your ideas.