The Working World

Entrepreneurs, Trust and Money

It might sound obvious, but if you’re running a business, you should aim to bring in revenue that exceeds the costs of running the business. It’s a point that panelists at New York Entrepreneur Week today at Columbia University felt they needed to reiterate, which may indicate that entrepreneurs are losing sight of what’s important in creating a successful business: income that will allow your business to grow.

“It’s a very simple thing to say,” said JP Werlin, PipelineDeals. “But it runs contrary to what you’re taught in the venture capitalist industry, but – ‘no expenses before revenue,’ it’s a mantra we have internally in our company and it’s helped us get to where we are today.” Pipeline Deals, which makes software for salespeople, never raised venture capital, but developed a company structure that allowed it to build slow and scale based on the revenue they brought in – not on spending money raised from investors.

“Fund yourself, and don’t quit your day job,” Werlin quipped.

With open jobs in short supply, starting your own company may seem like an appealing option, and anecdotally, it seems that there has been a flurry of new businesses since mass layoffs began in the last two years. And whether your aim is to build a multimillion-dollar business or simply a side effort that helps tide you over and keeps you busy, you need to be smart about how you raise and spend money if you want to keep things rolling.

Elmira Bayrasli from non-profit organization Endeavor, which works with entrepreneurs in emerging markets, noted that the biggest issue for entrepreneurs is not precisely an issue of capital, but one of trust. “We ask, ‘What do you need to grow your business,’ and they say capital, but when we get into it, the real issue is that they need trust.” If they want to build their customer base, they need their customers to trust them. Similarly, if they do raise capital from investors, they need to remember that trust is essential if they are to ever go back to the till, or to get not just capital, but also networking and other support from their investors.

In another panel, venture capitalists discussed the types of companies and entrepreneurs that appealed to them, sounding again and again their primary focus: companies that could make money and invest their earnings in positive growth.

But most of the entrepreneurs cautioned against taking on venture capital and the accompanying pressures to produce stratospheric returns required by them (one VC noted the formula was to get 5x+ returns on 40% of the companies in which they invested in order to deliver 20% returns to their own investors).

“Fund yourself, and don’t quit your day job,” Werlin quipped.

Tags: entrepreneurs, new entrepreneurs, Small Business