We’re afraid we have some bad news for anyone who’s thinking of starting a brand news business. You’re going to have a harder time trying to find finance than ever before, and it’s all everybody else’s fault. Until recently, investors were happy to pump money into anything that looked like a good idea on paper, figuring that if the product were good, consumers would buy into it. After a few high-profile failures, that’s no longer the case. Investors want to see clear potential for profitability. If that isn’t there, you’re going to struggle.
This doesn’t apply to anybody. If you have the means to launch your own business without any financial support from anybody else, then you’re lucky, and you won’t be affected by this negative change in the market. For the majority of start-ups, though, that simply isn’t an option. If you had enough money in savings to cover the cost of launching a large new business, chances are you wouldn’t have to work anyway, and so the business would never be launched! Just having a great idea isn’t enough to tempt people to part with their cash anymore, so read on to find out what’s happened, and what the alternatives are.
Back To Reality
The sudden reluctance to invest in start-ups is a recent shift in the market, and in some cases, it’s being blamed on the colossal failure of WeWork’s IPO, which ended with the cancellation of the company’s plans to go public, and the resignation of its CEO. That disaster was surprising, but it wasn’t unique. The truth is that the offerings of other high-profile companies have also been disappointing to investors. Many people who invested in Uber also now have buyer’s remorse. Just because an idea is practical and popular doesn’t necessarily mean that it’s profitable – and if the profit element isn’t there, there’s no reason for investors to pitch in.
Consider it like this. Let’s say you’ve logged onto a casino website. On the left-hand side of your screen is a very basic looking roulette game. On the right-hand side is a brand new mobile slots game, packed full of the latest features. The mobile slots game has HD graphics, an incredibly high jackpot, and some cutting edge bonus features. The roulette game has nothing. Which do you play? The mobile slots game on website like Rose Slots has higher theoretical rewards, but if you played roulette, you could bet on either red or black, or even or odd numbers. There’s less glamour, but your chances of success are higher. The sensible choice is to give up on the outside chance of a huge prize on the mobile slots game and chase a lower reward at roulette instead. That’s what investors are doing. They’ve all gone to the roulette table.
In the past, the perception has been that so long as a company is growing, it will inevitably become profitable at some point. Uber is the company that’s largely proven that perception to be false. The company has pursued a ‘grow at all costs’ philosophy for the past several years, and it seems that philosophy has come back to haunt them. Uber has just posted its Q3 earnings for 2019, and they’ve lost over one billion dollars. As a result of that, their stock has nosedived. A lot of investors who were seduced by the constant growth of the company are suddenly looking at big losses, and receiving a painful reminder that perception and reality aren’t always one and the same.
A Change In Strategy
What does this all mean for you? Your start-up company is unlikely to become as Large as Uber within the next twelve months, and you probably aren’t looking to break into the taxi market anyway. That doesn’t mean this doesn’t matter. Investment trends affect the way that all applications and requests for investment are looked at and assessed, and if your project is bigger than a mom-and-pop store, those trends will affect your chances for success.
The most important thing you can do to take this change in the market into account is to amend your business plan and show a clear path to profitability. Don’t talk about growth, talk about how and when your top line is going to grow to the point where it exceeds your bottom line, and make that happen before you even think about growing. If every dime you make goes into expanding the business, you’re never going to become profitable. If you’re never going to become profitable, nobody’s going to invest in you in the current climate. Making money now is more important than maybe making money in five years when you’ve opened another six stores.
There is, however, another way. Some companies have decided to ditch the traditional methods of seeking business finance altogether and come up with a different approach. Is your business idea one that people would support? Is it fair, and clean, and ethical? Do the people you talk to about it think it’s a really good idea? If so, you could do what several multi-million dollar businesses have done, and launch as a crowdfunded enterprise.
The premise of crowdfunding is simple – hundreds (if not thousands) of people donate money to you and your business idea, and you use that money to get your business or product off the ground. In return, all of those donors get something from you. For small donations, you might want to give them a free product or a free service. For larger donations, you may want to award them shares in the company. It’s completely up to you. So long as people like the idea and they’re happy with what they’ll receive in return for buying into it, they’ll usually pay in. Where traditional banks are stepping out, crowdfunding is stepping in. Perhaps this is the way business finance will work in the future. Perhaps this is just the latest internet fad. It’s too early to tell.
Whatever’s going on with crowdfunding, it doesn’t detract from the headline. A good idea is no longer enough to get ahead in business. Making money is more important than getting as big as you can as fast as you can. If you’re about to go seeking money for your business idea, make sure you’re singing from the hymn sheet your potential investors want to hear!
