Charlotte start-ups: Don’t take one penny from an investor; do this instead

Charlotte start-ups: Don’t take one penny from an investor; do this instead
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(An entrepreneur for more than 20 years, Mac Lackey has built and sold five companies and raised more than $75 million dollars in capital. He and his startups have been featured on CNN, The Wall Street Journal, Fast Company, USAToday and The New York Times.)

If we hear startup stories or follow entrepreneurial news, the steps leading to success seem clear: You have a great idea; you run the idea by friends or colleagues who absolutely love it; then, you raise money to get your idea off the ground.

The critical step to getting something off the ground being “you raise money.”

I’ve been hearing support for the raise-money-to-be-successful in Charlotte’s startup scene a lot recently. Charlotte does not yet have a deep history of startup success, so our attention gravitates towards trendy discussions like this.

Having raised over $100 million in capital for a variety of businesses over 20 years, I can attest to the fact that the raising-money-first model is an immature, short-term conversation for Charlotte entrepreneurs.

On top of the fact it’s just the wrong way to go about it. In fact, it’s scary wrong.

And here’s why –

That’s not how it works.

Media and pop culture have tricked all of us into believing that this whole scene operates the way the Facebooks do when, in fact, they are outliers. That’s why we call companies like Facebook unicorns – rare, magic feats of energy, time, and, yes, money.

If you have an idea, and you’re waiting to raise money in order to pursue that idea, you’re cheating yourself – and your idea. You may actually miss the boat.

There’s a better way to do it. Develop a clear path and get real about your need for capital.

Here’s the formula:

  1. Define the end
  2. Outline the critical success factors
  3. Develop the plan to reach the critical success factors

Define the end

You’ve heard this a million times – start with the end in mind. So, define what success means to you or what it means to your idea. I’m not talking success one year out. I’m talking five to 10 years from today. Be scary clear on what success looks like for you. Did you sell it for over $10 million dollars? Do you employ 1,000 people? Did you cure a disease? Whatever that is for you, write down every detail you want to define that end with HD-quality clarity.

Outline the critical success factors

When you start by defining the end, you now know what you are shooting for; so, now you have to clearly define how you’re doing to get there. And you’ll get there with critical success factors – those non-negotiables with the power to elevate your idea.

At that halfway mark, what value do you need to have created by this point to reach the long-term goal? If you want to sell the company for $10 million in six years, what has to happen to make your company worth that in three years? Do you need patents awarded? Do you need exclusive distribution deals? Do you need 1 million customers paying $10 a month? Do you need to hire people or build products?

Again, write them all down. Challenge yourself to be as clear and as specific as possible.

Develop your plan

Now, back it up one more time – what do you need to get from today to those critical FIRST critical success factors? If you need a patent do you have the right patent attorney? Have you studied successful patents for their content, style and approach?

Map every one of those critical success factors back to right now. What HAS to happen? Brainstorm every possible way to reach your CSFs. Be creative. Be though. The more approaches and the more ideas the better.

. . .

To really test it, none of those first three steps can involve raising capital.

For example, if you think you need to hire a top patent attorney as one of your first steps, don’t immediately say to yourself: See, I need to raise $100,000 to pay that great local patent attorney John Smith to even think about getting this idea off the ground.

In that moment, here’s what you should be thinking about: Who do I know that can connect me to John Smith? What is John Smith motivated by, and is that something I can offer? (Maybe John Smith’s daughter plays guitar, and you’ve been meaning to put that Music major to use.) Put serious energy into mapping your way to these CSFs without using capital.

Raising money is the entrepreneur’s chest beating – you raised how much money how quickly? But, focusing on raising money is like creating a whole new business. Don’t miss the boat by focusing on capital.

I’m not telling you not to raise money. You might, in fact, need to raise money at some point. What I’m saying is you don’t need to do that first. Also consider things from the venture capitalist’s perspective – are they interested in investing in an idea that’s already rolling and knows exactly what it needs the money for and what’s possible with it or are they interested in investing an idea that’s still…an idea?

Too many times, entrepreneurs or start-ups use raising money as not only a crutch, but also an excuse for avoiding the hard work. It’s time to do the hard work. The longer you wrap yourself up in the story that you need the capital investment to get moving, the longer the world waits for your idea.

If Charlotte needs anything right now, it’s your bright, creative mind and the big banks supporting startup ideas and innovation. Charlotte will then have a sustainable ecosystem whereby banks fund startups driving innovation which then get sold to banks who need the innovation.

All that’s possible for the future of Charlotte as a result of that ecosystem starts with you – not with money.

This is part of our Startup series. If you’re a startup leader and would like to participate, please email Trent at trent.hawthorne@gmail.com.

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