One of the biggest problems anyone faces when looking to get a business idea off the ground is finding the start-up capital needed to get things going. Paul Lawrence knows this only too well, and as you’ll see in his article today, it’s a difficult hurdle that many entrepreneurs can't overcomet. But there is an answer as Paul explains...

 

By Paul Lawrence 

 

The 28-year-old man was in a difficult financial predicament. He had an idea for a business... but he had no money in the bank, no job, and a general track record of failure. The odds of getting the capital that he needed would’ve seemed ‘slim to none’. Yet within 10 days of his formulating his concept for the business, an investor had put in the money. 

And he was earning a healthy profit in less than 30 days. 

 

As you might’ve guessed, the man I’m talking about was me. Armed with a new plan to reverse my dismal position in life, I decided to start a snack-vending business. Not surprisingly, people weren’t banging down my door to give me a loan. Fact is, if you have a great business idea but don’t have your own capital... or excellent credit... or collateral to secure a bank loan... your choices are limited. 

 

Yes, some venture capital firms will invest in new businesses, but such businesses are usually involved in technology or some other high-growth area. Frankly, for most small businesses, venture capital isn’t even an option. It’s rare for a small-business concept to have the kind of mammoth payoff venture capitalists look for. Plus, the cost of doing business with these companies is high. It’s basic economics. Their risk is high, so their reward must also be high. 

 

Even if you were to interest a venture capital company in your business, you’d be aghast at what they’d want in terms of their ownership position. So if you forget about commercial bank loans and venture capitalists, you’re left with only a few ways for raising capital for small business ventures. One of the best is to find a business partner. 

 

Now, when I say ‘find a business partner’, I’m not talking about pleading with your parents to get a second mortgage on their home or twisting the arm of a lifelong friend who always said he’d do ‘anything’ for you. 

 

(Although, if you do have affluent family members or friends who might want to invest in your business, you should certainly pursue that possibility.) I’m talking about hooking up with someone who is willing and able to invest in your business in return for a share of the profits. 

 

Seeking a small-business partner is not much different than seeking a small-business loan. "To be successful in obtaining a loan," the Small Business Administration tells us, "you must be prepared and organised when making your request. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk. All the same holds true in seeking out a small-business partner to invest in your business." 

 

As most everyone knows, small businesses have an abysmal failure rate. According to Business Week Online, "64.2% of businesses fail in a 10-year period." No wonder potential investors tend to be so sceptical of a new business’s chances for success! When I wanted to enter the snack-vending business, I needed capital to purchase the machines. To overcome the understandable reluctance an investor/partner might have, I used some strategies that I have since developed into a technique I call ‘SIPE’ - which stands for Solicit, Interest, Persuade, Execute. With the SIPE strategies, I quickly and easily found a former co-worker who was eager to be my partner...

 

 

Today we’ll get to grips with the Solicit and Interest elements. In next week's issue we’ll tackle Persuade and Execute. So, here’s how you can use the Solicit and Interest elements of the SIPE strategy to find and solidify your partnership: 

 

1. Solicit: Present the hypothetical possibility of a future business opportunity. Casually ask your prospective partner, "If I happened to come across an interesting business opportunity, would you be interested in hearing about it?" 

 

It’s important to note that you’re not asking her if she would invest in a business, but if she’d like to hear about potential opportunities. Since she won’t feel that she’s being pressured, it’s more likely that she will give you a positive response. You also immediately rule out people who have no interest in any business proposals... without putting them (or you) in an uncomfortable position regarding your project. In my case, I mentioned to my former co-worker that I was planning to start a small business, and asked if he wanted to be kept in the loop during the process. He readily agreed. 

 

2. Interest: Give your prospective partner a one-sentence description of your business. A long-winded explanation can sound like you don’t have confidence in your business idea or that you don’t really know what you’re talking about. So keep it short and to the point. You then follow up with a couple of supporting statements that provide strong reasons to believe your business idea is viable. 

 

In the case of my vending-machine business, I used the example of a friend of mine who, with no experience in the business, was able to start a profitable 10-machine route. OK, that’s the first two steps. Tune in next week for 3 and 4 when I’ll look at how to 'persuade' and 'execute'.