Buying into Yourself

Invest in a business, not in a dream

How unfashionable is this statement? The sole mission of any business is to optimize value for shareholders.

Try dropping that into a politically correct dinner party, or, for the really brave, putting it on a placard and joining an anti-Wall St demo.

You don’t have to go that far. Shareholders are hardly flavor of the month anywhere.

Yet most of us are shareholders one way or another. Anyone who has a pension scheme probably holds shares in a bank, whether they chose to or not.

It still has to work

I know an ethical investment fund. It avoids shares in companies that make money from alcohol, gambling, nicotine and environmentally negative practices.

Because of the narrow investment choice, they suggest they will get a return of just 5% per annum. That’s below the promise of less constrained competitors, but it attracts investors – shareholders – because that’s what they want.

They accept that slightly lower return, because it meets their value criterion on a sustainable basis.

In reality, that fund does better than a lot of plain vanilla funds. Nonetheless, if they said “We will only support ethical industries. Over time we expect to lose around 5% per annum. In a dozen years or so, you will have nothing left”, would anyone invest?

Probably not. The prime aim of any business is to be self-sustaining. Otherwise, there is no point. No jobs; no product; no survival. No ethical funds either.

The business mission is to build and maintain a sustainable income stream. It does not mean you don’t do so ethically. Nor does it dismiss values statements, engagement strategies or philanthropic activities from your list of preferred practices.

But if it can’t be self-sustaining, people will not invest in it. Neither should you.

That's how you should approach your startup

It’s an investment. It is not a dream, or an idea, or just a really exciting concept.

People are often surprised when angel funders or venture capitalists don’t leap at the chance of investing in your great idea. Try putting yourself on the other side of the table.

You are going to invest a couple of years of your life and most of your spare cash in this project. It’s a great idea, but

 

• Is it a product yet, or just an idea?
• Does it work?
• Why isn’t anyone else doing it?
• Has anyone else tried it and failed. Why?
• Or succeeded? Why?
• Is it ready to roll?
• How soon will it be cash flow positive?

You are going to be a shareholder in this venture, maybe the only one. There will be no point in doing it unless it creates value. You create value by generating a sustainable income stream, preferably a big one. Optimizing that value is what business is about.

This is a reality check, not a dampener on your enthusiasm. Before you give up the day job, leave the greatness of your idea to one side and answer the 101 questions in a free quiz you can download here. Make sure you are ready to invest.