One of the wisest questions any startup could ask is, “What should I be looking for in an investor?” Wise startups assume they have some say over whom they will accept money from, rather than being in the desperate position of being lucky to get any investor.
When you choose your investor carefully consider their motives and what they can add to your business besides funding. Sometimes the “perfect” investor is not bringing hard money to the table! Sometimes what they bring can be of greater value to you in the short term and protect your equity position in the long term.
For years we could not get an investor in Barefoot Wine, now the world’s largest brand. The banks wanted nothing to do with us because we didn’t have a “secondary means of collateralizing the debt.” Those are big words for owning real estate. They wanted us to own property they could take if things went south. Ironically, when we tried to buy a house they said we were self-employed and ipso facto “unstable.” When we complained that they had floated mortgages to four of our employees, they said, “Well, that’s different. They have a good solid job!”
So were forced to go it alone, undercapitalized and on the verge of bankruptcy for years! But that was a good thing! That forced us to be resourceful, frugal, and practical. We never had a bunch of money to “burn” through, so we had to come up with alternatives to get the word out about our product. We had to come up with other ways of financing our growth. We were forced to grow slowly.
Yes, it was a good thing because we learned how to get our vendors, suppliers and retail buyers to “finance” our business and we never lost control. They had an interest in seeing us succeed and we learned quick enough what we had to do to gain their trust. They were, in retrospect, our ideal investors.
Had we gotten the Shark Tank variety of investors, we would have been forced to sell as soon as we achieved the equity return majority owners wanted to see on their investment. Not necessarily the most opportune time for a sale, but the shortest turn around for investors!
With access to capital we would have approached marketing in a much more conventional, expensive, and less efficient way that we did – which was to use Worthy Cause Marketing. Because we were broke, we chose to support local fundraisers in the neighborhoods around the stores where our brand was for sale. We hoped the non-profit’s members would choose our product over our competitor’s. This turned out to be a targeted, highly efficient, and effective way to build a loyal base of advocates.
Our “investors” who were suppliers and vendors stood to gain by our success, so they granted us extended terms, higher credit limits, and free warehousing. In the case of “investors” who were our retail buyers, they gave us cash for volume discounts, store-wide ads resulting in higher volume, and they gave us their loyalty. In other words, they helped us build our brand.
These “investors” wanted long-term contracts, quick resolution to customer service issues, and empathy for their position. They never pressured us to sell our brand. On the contrary, they wanted us to continue to enrich them with ongoing growth and success!
So what is the bottom line? Your ideal investor is someone who is in your industry and stands to gain by your success in more ways than just a return on their hard capital investment. They will be more supportive, more forgiving, and more respectful of your long-range goals. Cash is not necessarily king. It takes more than money!
Who We Are
Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.
Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.
They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.
Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.
To make inquiries for keynote speaking, trainings or consulting, please contact firstname.lastname@example.org.