During a recent conference for entrepreneurs, I attended a segment on work/life balance. I looked around the auditorium and realized that if at any moment, during any part of the day, the word “business” were to be replaced with the word “alcohol” no outsider would be able to tell that we weren’t all actually attending some Alcoholics Anonymous annual jamboree.
Business had made us drop out of school. Business had isolated us from our friends. Business had caused divorce, ruined our families, and put distance between ourselves and our kids. Business made it hard to sleep. Business made us unsure of who we really were. We spent all of our money on Business. We begged, stole, and borrowed for business. And every time we tried to get away from business, for some reason we just kept going back.
Business has become an addiction, an addiction most of us acknowledge started when we were very young. It is an addiction that most of us acknowledge has made us very sick. And even though some of us seem visibly to be doing better than others, few of us will ever be able to go without a taste.
So entrepreneurship is a disease. And like any good disease a counseling, consulting, and self-help industry has sprung up around it – CPA’s, consultants, creative accountants, researches, and authors. Even the government is stepping in with the SBA to “assist” those of us who are suffering. And for those hell bent on not getting better there are Angles and VCs around to meet us in dark alleys and give us what we need to get by for another couple of months.
And thank god for all of them. Without them no entrepreneur would be able to 7 or 10 step his or her way to anything. We would not know how to hold influence over anyone! We could not go from good to great. Can you even imagine a world where we would not be able to learn about that one thing that no other business owner knows about that will make our business totally successful from that one author who never owned a successful business and is actually willing to sell his or her secret to any buyer so that it actually creates no real competitive advantage? We would be totally fucked! Or would we?
During a break at the above mentioned conference I was in the bathroom when I overheard a panel member (a venture capitalist or ‘VC’) say to another panel member, “Do you know the one thing I really love about entrepreneurs? They’re just so optimistic. I just love their optimism.” In case you just smiled, patted yourself on the back, and said to yourself “Yes, aren’t I though”, let me just translate what he really meant when he said that. It goes like this, “I just love entrepreneurs. They are such suckers. They are willing to give up large stakes in their companies for relatively small amounts of money in the hope that their small percentage will be worth a lot of money someday. It is their optimism I just love because it keeps a pretty steady line of suckers at my door. Oh, and I don’t even have to come up with these super creative ideas all these entrepreneurs have. In fact, when we invest, we don’t even have to value the idea – it’s not part of the valuation process at all! Not one penny or 1 percent of investment is attributed to the value of the idea! It’s not part of any equation or line item. I get the ideas for free!”
I promise you that at some point, someone who wants to talk to you about investing in your company will ask you, “What would you rather have? A big piece of a small pie or a small piece of an enormous pie?” The person who first asked me this question was a venture capitalist himself, and since then I have heard it asked many times over. In the mind of the person who first asked me this question, my obvious answer should have been that I would rather have a small piece of an enormous pie. My “optimism” should have lead me straight to this conclusion because my “optimism” should have provided me no doubt that all my ventures will be wildly successful – and that the size of my ownership stake will have no bearing on that fact. However, having now heard this question posed over and over, the analogy has started to cause in me the same reaction I used to have while encountering rattlesnakes as I walked along the banks of the Snake River: 1.) Stop 2.) Listen intently to where the rattle is coming from, and 3.) Slowly start walking backward and in the opposite direction of the sound. This reaction comes from realizing the fact that the person asking this question has given up on the fact (or never recognized it at all) that ideas are the most valuable pieces of the pie. If investors think money makes pies grow bigger, they are wrong.
I will admit that at one or two points in my life I have explored the possibility of outside investment in my companies. I clearly understand that money is a “lubricant” that can get things moving faster, and that has been my primary motivation for seeking investment. But I always back away because I have been unable to find a relationship between value and money that exceeds the value I can gain from my own ideas and my own consistent, exhaustive, physical labor. Cash alone cannot create real, significant value in a company. Therefore, giving up a significant portion of your company for cash will do nothing to increase the value of your company. Only great ideas and physical labor can. Thus, the idea that those who inject a business with money deserve, in the end, a bigger portion of the “pie” is a fallacy. Money does nothing. You do. As entrepreneurs in need of “lubricant”, we should start asking for more and giving up less. We should never put ourselves in a position where knowing who owns the pie becomes confusing. It should always be your pie to share, not your pie tin to clean up once the eating is done.