A Moron's Guide to Small Business

I’m a moron.

I did something that Mark Cuban, multibillionaire investor and owner of the Dallas Mavericks said only morons do — I borrowed money to launch a business venture.

Cuban says there’s no sense in doubling down on a bet that has so many chances of going bad, because of “lack of brains, lack of effort” — or the entrepreneur didn’t “work smart.”

There’s probably a point to be made in the midst of all these clichés. But I have to ask: Where’s the money going to come from? Personal savings? Family and friends? Crowdfunding? It has to come from somewhere and no matter what, it has to have a way back, too, whether in the form of principal and interest payments on a loan, or a return of and on invested capital.

So let’s say you aspire to be a moron like me. How would you go about getting your venture financed?

By knowing what it takes to run a business, understanding the responsibilities and risks you’ll have as an owner, and by having an idea that can stand up to pen and paper.

Be a Leader

Anyone can choose to be their own boss but enduring businesses are run by leaders that not only have relevant experience but also the focus, drive and discipline needed to establish and follow a plan. They also have the ability to set realistically attainable objectives and the humility to modify a wrongheaded course, no matter its champion.

Be Responsible

Successful entrepreneurs understand the ethical and moral responsibilities they have to those but for whom they wouldn’t be in business in the first place: the customers, clients and patients who purchase their products and services; the vendors that keep their shelves stocked with raw materials, finished products and office supplies; the lenders that provide financing for inventory, accounts receivable, equipment and real estate purchases; the investors who supply the capital lenders will want to see is in place before they approve a loan application. And last but not least, the employees on whom your day-to-day operation depends.

Know the Risks, and Be Ready for Them

Effective business owners are also mindful of the financial, operational, market and hazard risks they accept when the numbers are missed, mistakes are made, a new competitor disrupts the status quo or Mother Nature decides it’s time to mess with the landscape. Lenders and investors know that every business is a jack-in-the-box full of risks. What’s more important to them, however, is that the entrepreneur they’re contemplating backing knows that too, and that he or she has a solid plan for steering clear of perils that are avoidable, and limiting the damage done by those that aren’t.

Write a Business Plan

The business press is filled with stories about hotshot visionaries who scored mega startup dollars with pithy elevator pitches, amazing graphics and fist-pumping, knuckle-knocking enthusiasm. But it’s the old-fashioned business plan that helps troubleshoot the brilliant idea that can end up draining a family’s savings.

A well-designed plan doesn’t have to rival the length of War and Peace. But if your intentions are to attract lenders and investors with the capital, advice and Rolodex that can help you and your venture to become more tomorrow than you and it are today, start by describing the idea you have in mind, the industry you’ve targeted, the competition you expect and the strategy you propose. Talk about your management team: how they are a diverse, competent and independent-minded group — because when two people agree all the time, there’s no need for one of them.

Describe the operation: how the checks and balances you and your partners have put into place will assure your prospective lenders and investors that the money they entrust to you will be safeguarded and appropriately deployed. And take the time to develop financial projections that reflect what you and your team truly believe will come to pass and are willing to be measured against, along with the best- and worse-case iterations you can envision. Be sure to disclose your underlying assumptions and be prepared to defend them.

Pay Attention to Your Personal Credit

Small businesses and professional practices are typically closely held. They involve a handful of owners who wield significant operational influence and control. As such, lenders will usually insist that owners personally guarantee their enterprises’ debts, but not before taking a look at their credit bureau reports. Your investors may also rely on these reports and background-checks to validate their instincts. Or as one of my former benefactors told me after he successfully cashed-out of my venture, “I only back entrepreneurs I’d trust to babysit my kids.”

Startup money isn’t easy to source, especially in this post-collapse environment. But it’s not impossible either, as long as you’re willing to put in the time and effort it takes to make a factually compelling case. Because when all is said and done, lenders and investors will be making four fundamental decisions that you have the ability to influence: whether they want to work with you, how much cash they’re willing to risk, the financial return they expect and the terms and conditions they intend to require.

Who knows? Perhaps you, too, can become a moron.

Image: Jupiterimages