Funding seems to be the root of all evil when it comes to a startup business. Entrepreneurs often have the mentality that they need all kinds of funding to turn their idea into a reality. Crowd funding is the hottest of funding topics. With the SEC set to release its rules to the Jumpstart Our Business Startups Act (or JOBS Act) this week, entrepreneurs are salivating over the potential ease of obtaining funding.
The JOBS Act has its pros and cons but we are not going to get into them at this time. Instead all the hype surrounding the JOBS Act seems shine a light on the mentality of the entrepreneur. While there is a need for funding in a startup venture, it is just one of many things that you need to have in order to have any chance at success. Funding is a tangible thing and that tangibility allows an entrepreneur to feel warm and fuzzy on the inside. But is funding more important than having a market for your idea? Is it more important than having a complete team around you? Is it more important than having a solid business plan that still remains flexible to change as your idea evolves?
In reality funding should be something that is used only when necessary. Taking on new equity owners or debt only complicates the process. Grand Rapids Opportunities for Women (a West Michigan group that is dedicated to developing local entrepreneurs and is not limited to women despite its name) received $200,000 from the SBA to issue microloans of $1,000 to $50,000 to small business owners in Kent, Ottawa, Muskegon, Newaygo, Montcalm, Ionia, Barry, Allegan and Kalamazoo counties. These small loans appear to be going to small businesses that just need that little push to get over a road block. These entrepreneurs are not taking on a ton of debt or new partners but they are moving their businesses forward.
Are microloans the solution to every funding situation? I would not even attempt to make that argument. They are not even right for a majority of startups or entrepreneurs. They are a good fit for a segment of the population. The rest of the population needs to finds what fits them best. That is where planning and strategizing comes into play. Will the new JOBS Act be a right fit for your startup or is an angel investor? Maybe your idea can be funded by friends and family. Maybe there is a group in the West Michigan area that you can get some funding from them.
There are a lot of options for an entrepreneur to go after and it’s not something to be entered into lightly. Many entrepreneurs are so eager to get funding they will push for every option and deal with the consequences after. Do you want to deal with hundreds if not thousands of investors that crowd funding would bring? Do you want to get tied to a single investor that will likely want a say in the operations of your business? Do you want to deal with the inherent tension in borrowing money from friends and family? Taking the time to not only plan out when, if at all, is the right time to seek funding but also which funding fits you best is important. An advisor would be able to not only provide you with the available options but provide you with a complete long term picture of what each option would mean for your business.
Source: “GROW program provides access to microloans” by Kelly Hill of MiBiz