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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.

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