Skip to main content

Don't Give Start-ups More Money, Help them by Giving Less

My title sounds wrong, doesn't it? Journalists and economists - you know the types: instant experts on everything, but where the priority is not to inform, but to be considered smart - are telling us "What Britain needs is for the banks to free up credit to help more people start businesses". Politicians are telling us the same. "Let's lend or even give loads of money to get the economy jump-started." "The more money you make available, the more jobs you'll create" is Labour's mantra. In my opinion that's the opposite of what actually works for most start-ups.

I understand that some businesses simply can't get going without a modest amount of funds, and a tiny few can't get going without an awful lot of funds (tricky to get a nuclear power station cranked up in the garage). But my advice is to starve start-ups for as long as possible. In fact if they can't get going and survive on virtually nothing, then you're simply putting off the day that they'll run out of someone else's money.

What they need is not cash. It's advice from people who have been there, done that. Especially people experienced in their sector - always bet on the gladiator with the most scars. And the best advice an old hand will give a start-up is 'listen to your customers'. Don't assume you know what they want. Find out. Pilot ideas. Test the market cautiously. Ask questions. Listen. Watch. Learn. Then spend as little as you can possibly get away with to start very very slowly. With luck you'll be able to adapt what you're doing to better respond to what your customer will hopefully tell you they want to buy from you. If they don't tell you, then something's really amiss. The more you spend at the outset on designs, websites, plant, premises, people etc, the harder it will be to change tack. I love competing with big corporations. They can't possibly change course as quickly as a small team. And customers soon get sick of asking them for things they'll never get.

If you give a start-up more money than they need, they'll ignore the perils of cashflow because they'll think they've got enough to last as long as they need. They simply won't drive themselves to do the single most important thing a company can do - sell. They'll spend inordinate amounts of time perfecting their product, refining their website, their logo, their advertising (lord help them), lawyer-written contract terms, their reception area, their stationery, their brochures and choosing their company cars. Then they'll launch with a fanfare, a party, a blast of ads and heavy PR - only to discover that they misread the market and their competitors. What businesses need is proof, not hope. If you have to shout about your products, your customers aren't in the mood to listen.

So the worst thing an investor can do, in my mind, is make start-ups fat, lazy and arrogant by enabling them to bypass those all-important birth pains. In the words of Nick Lowe - You've gotta be cruel to be kind.

Comments

Popular posts from this blog

Phillips screws - yes I'm angry about them too

Don't get me wrong. They're a brilliant invention to assist automation and prevent screwdrivers from slipping off screw heads - damaging furniture, paintwork and fingers in the process. Interestingly they weren't invented by Mr Phillips at all, but by a John P Thompson who sold Mr P the idea after failing to commercialise it. Mr P, on the otherhand, quickly succeeded where Mr T had failed. Incredible isn't it. You don't just need a good idea, you need a great salesman and, more importantly, perfect timing to make a success out of something new. Actually, it would seem, he did two clever things (apart from buying the rights). He gave the invention to GM to trial. No-brainer #1. After it was adopted by the great GM, instead of trying to become their sole supplier of Phillips screws, he sold licenses to every other screw manufacturer in the world. A little of a lot is worth a great deal more than a lot of a little + vulnerability (watch out Apple!). My gromble is abo

Would we pay more for their stuff?

I'm confused. Brexiters argue the Germans, Italians and French will still want to sell us their cars, so continued free trade with the UK is in their best interests. But we'll have to negotiate this (with an EU unwilling to make leaving easy) by threatening to make their cars more expensive for British people to buy. We'll do this because WE need to make imports more expensive to try to restore our balance of payments. Are Brits prepared to pay more for their Audis, Fiats and Renaults in order to make British cars more appealing, or do Brexiters want to pay more in order to punish them for taxing our insurance and banking products? Either way, imports will cost more. While in the EU, we buy their cars because we like the choice and don't want our own government to tax them. Indeed it would be better for British car manufacturing if we went back to the good old days of being encouraged to buy cheaper British cars (made by foreign owned factories). Is that what Brexite

Brilliant Inspiring Statues