The Example of What Not to Do
We were approached a few years back by a company looking to sell their products and set up business in the Canadian market. The owners were manufacturers of an offshore product that had done well in Europe but had no real presence in Canada. They wanted help with marketing and wanted us to set up a distribution channel and manage it for them.
Regarding contract negotiations, it became abundantly clear that they wanted us to do this for "free" and take a risk in their business in the hopes that the product would sell here in Canada. The idea was to give 4 days a week (8 days for both) each of our time for their business to help it get set up and running. Once this was complete and "if" the product sold here, and "if" they could meet the obligations of the distributors here, and "if" they could deliver on time - we might get paid. The key here to note is that they could cancel the contract and not pay us at any point in time after we had done the work. I am not sure why they believed anyone would do this; we sure didn't.
If you think it is uncommon, it is not and is one of the mistakes that new business owners make. They believe they created the next most incredible idea and that everyone should believe in it as they do. They thought everyone would want to jump on board and help them when they have not put any skin in the game.
Understanding What An Idea Is Worth
An idea or a product is worth nothing if you cannot execute your plan. Whether looking for others with skills you do not possess or an investor for your business, you cannot expect others to risk their business in your idea when you are not doing the majority of the work or putting in money.
If I had a nickel for every start-up that wanted to provide us equity for work they could not perform on their own, or find investors for them when they had not invested any money in the business - I would be a millionaire today. The funniest part of this is that they usually want to maintain 90% of the company, and they only have the "idea," and everyone has the skill and the money. One of the key ingredients to a successful business is the team you put together, but it is imperative that if you ask others to invest their time or funds in your business, you can genuinely look yourself in the mirror and say you have done the same.
If someone came to you and said, I have this idea worth millions, but to make it a reality, I need money and skills to pay for a business plan, a patent lawyer, marketing and sales, and a supply chain. In addition, they want you to give them money or provide skills for free because they were the ones with the idea. Would you believe that was a reasonable request? The answer is an absolute no. Before others can believe in you and your vision, you need to be realistic about what your idea or product is worth without help or funding from others.
There is also the old saying - you pay nothing - you get nothing. Before you ask other people with skills and money to work for "free" or take all of the risks in your business, ask yourself if the shoe was on the other foot, would you do the same? The manufacturer told us they were doing this because salespeople had burned them, and now they wanted others to now take the risk.
What they meant is they did not know how to hire the right salespeople with adequate skills, did not vet them, and most likely tried to pay them in peanuts instead of real money. They then wondered why they did not get the sales they needed. They then determined they needed help setting up everything in a new country, approached experienced consultants, and now wanted them to do all of the work and take the risk for their past mistakes.
There Is Help Available
If you are starting a business and lack all of the funding skills to get it going, look for people who can act as business advisors and sit on your board willingly. There are also organizations that are funded in Canada by the federal government and provinces that can help you get started with some free services. They can help assess what you don't know and can also help provide a reality check.
Contact the Ministry of Economic Development within your province to find out what is available. There are Small Business Enterprise Centres, Regional Innovation Centres, and Accelerators and Incubators on College and University campuses in Ontario. Another organization is Futrepreneur Canada. Similar programs exist in other provinces in Canada and throughout the world.
Before you talk to investors , you need the following:
The idea must be real such as a prototype at a minimum.
If patents are applicable, they must be underway or in place.
You must have sales with revenue or signed contracts with potential customers.
Before approaching them, you need proof that you have invested your time and money in the venture or raised money through family and friends.
You either have the skills or have hired employees on your team to execute your business plan.
You will not get there by getting inexperienced people to do work for free. If you do not have the skills to execute, you need to be ready to either pay for the service or give up a larger piece of your business once you have utilized the resources available for free. Having a 100% of nothing is nothing - having 10% of $1M is $100,000.
Summary
When you start a business and become an entrepreneur, it is all about risk. There are financial, competitive, and internal and external risks, but if you are to be successful as an entrepreneur, they are yours to take. Not all ideas will be successful, and if you look at many famous entrepreneurs, they have had failures and successes, but they didn't look to others to take all of the risks instead of themselves.
There are resources are out there to help you as outlined above, but it is up to you to seek them out. Once you have done that, you can get help from others. Still, it is then about investing in your business, whether you need help in developing a sales channel, having a website created, help in hiring employees, or obtaining funding. There is an excellent reward in owning a business and seeing it flourish, but with that comes the risk.
We provide services for start-ups but usually recommend looking for assistance through programs outlined prior and contacting us. Our work with start-ups is doing feasibility studies to determine if their idea is viable before spending time, money and resources to begin or with business plans when they require funding. If a start-up is looking for a low amount of funding, a feasibility study is usually enough for a bank or investor. A business plan is usually needed if the amount of investing or funding needed is high. We have specific business coaching for start-up businesses that have been in business for at least six months.