Today I sit in day one of the Ohio SBD;s Statewide Conference and what do you think the word of the day is? Well, the word of the day is actually-cluster- but the true word of the day is the same as always when the question of what our clients need most is presented''fundin'. We receive about 10 to 12 calls a day for new requests for advising services and 90% of those requests are for help with obtaining funding. The conversation with our potential clients always displays their passion and their excitement in how they believe that this business idea is the best thing that will happen to the world since sliced bread. Everyone will want to buy it therefore every investor should be clamoring to invest. Wel'who knows maybe that will be the case, but in reality what is usually more true is that the type of business they are developing is't considered in the Venture Capital world as an investable business. Here, in his latest post*, Michael Bowers* of the Ohio Small Business Development Center sheds some light on the funding that is best suited by business typ'
There is a difference between a traditional growth business and a high growth business. There is nothing wrong with either one but you can't be both at the same time. It is not uncommon for a traditional business to inquire about seeking investors which their growth path can't support but more and more I am hearing from early-stage entrepreneurs that have an opportunity to really grow that are acting like the corner store. They are asking for dollars to pay for start-up or initial roll-out expenses but not looking at the big picture and thinking about their future growth needs. If your business is going to be big and scale you need to build it like a business that is going to be big. You can't expect to be big and act small.
Here are some of the differences between traditional businesses and growth businesses:
- Traditional businesses have a slower ramp relating to sales thus need less growth capital.
- Traditional businesses can grow more slowly because they don't need to support large ROI requirements of investors. The corollary to that is that traditional businesses don't have the growth needed to support investors so they need to look to other financing sources such as bootstrapping and debt financing.
- Growth Businesses are typically product oriented not service oriented which will allow them to scale.
- Growth businesses need to look at what it takes for them to move from milestone to milestone not just the next step. They need to think and act strategically.
These are just a few of the differences but if you are building a growth business you need to build the business appropriately. It is going to take more than initial funding to get you to where you need to be. Initial revenue will not support the speed that you need to scale. I equate growth capital to the difference between adding brush and sticks to your camp fire and pouring gasoline on the fire. The gas will make it burn more quickly, brighter and higher but you need to keep adding it or it will burn out. If all you think what you will need to grow is a one-time infusion of capital, you can expect to burn out pretty quickly.
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* This hyperlink goes to a non-government website