Guest Blog written by Steven Shamrock – CEO and Founder of Shamrock Accounting, a Chicago-based Accounting & Tax firm. Steven can be reached at 630-344-2642, by email at email@example.com, or visit his website www.seshamrock.com
How many of the business owners or future business owners reading this blog have thought about expansion? Many perhaps not, but some of you I would venture have considered expanding the scope and/or size of your business or business idea.
I think this is great. Small businesses are the source of most of the job growth in the United States. But why do you want to expand? This question, I believe, is the most important one that any business owner can contemplate. There can be many answers –needing money for family, making room for kids to work in the business, cashing out to start another business or retire. These are all good reasons to grow. However, I invite you to think a bit deeper about your motivations to be a business owner.
Why are You in This Business?
Is independence the quality of life you want most from running your own show? Is it the ability to keep the fruits of your labor? Perhaps it’s the flexibility that owning a business permits – while customers or clients need attention, you decide when and how to service those customers, in spite of any consequences to your revenue.
If we go a bit deeper – are you committed to the idea and potential of your business so much that you don’t mind if you are no longer in control? Is the cash you hope to attain from divesting your company more important to you than the business itself? Or is it the satisfaction of running your enterprise that keeps you energized everyday?
If your responses are weighted towards satisfaction with running the business, there is a good chance that you should not consider venture capital for expansion. Venture capitalists are interested in a business for one reason – the ‘exit’, or the ‘payoff’. And they will do whatever is necessary to attain that payoff or cut their losses. You are not their concern.
I am not saying that venture capitalists are wrong, evil, or misguided – venture capital is responsible for bringing some of the best innovations to market so that consumers and society can enjoy them. Ever heard of Intel? In a capitalist society, there is no greater result. And if you are committed the idea of your business rather than the lifestyle it offers you, venture capital could be the way to go. Moreover, if you are successful in helping to bring about a successful ‘exit’ or ‘liquidity event’ (dividend, sale of stock, debt offering) you may be able to stay in the orbit of those venturers and be asked to run or build another of their companies. If that sounds attractive to you, you should definitely consider venture capital as a growth strategy. But you should know that you will give up control of the company and that if you are deemed to be an impediment to the exit event, you will be replaced.
If, on the other hand, you want to remain in control of your company, then loans, passive investors, your company’s own equity, or crowdfunding sites may be your best way to obtain growth capital.
Crowdfunding takes many forms. Kickstarter is perhaps the most widely known crowdfunding website, but it is geared towards creative projects. Project owners cannot offer ownership or debt interests to investors, but only rewards. Additionally, Kickstarter campaigns are an all-or-nothing-proposition. If you do not hit your goal, you do nor get the funds. Other similar sites such as Indiegogo permit you to keep the funds if your campaign falls short, albeit in exchange for a higher fee (which could be as high as 10%).
Crowdfunder and similar sites permit a business to offer debt or ownership interests. When using Crowdfunder, you do not need to raise all of the funds to enjoy the money raised. However, there are fees to consider.
Using Crowdfunder or a similar service may permit you to remain in control of your company. However, only Accredited Investors can invest. Accredited Investors are those who have significant net worth and investing experience. So these investors will probably want to have a lot of say in how you run the company, and thus restrict your ability to run things as you would like
If you want to expand, ask your self why, more specifically why you enjoy running your own business. If you are in it for the lifestyle, venture capital is probably not the way to go. If, however, you are motivated largely by the idea or product your company represents, you may want to consider partnering with venture capitalists