Posted by Trevor on 15 March 2012 | 1 Comment
The previous post in this series goes over why you need to stop analyzing where you are and just start your business. Now we’re going to talk real money. One of the basic mistakes would-be entrepreneurs can make is to try to raise a small amount of capital. When you’re talking to an investor, you have to step into their shoes.
Years ago, I read a book called “The Magic of Thinking Big” by David Schwartz. The author wrote that if you have a group of sales people in one room and separate those who have big dreams or ideas from those with small ones, you will see the difference of their ambitions reflected in the results of their sales. A light clicked on in my head when I read this. Most people hold themselves back because they don’t think big enough.
I started my company thinking that I needed ninety thousand dollars so I scrambled around to get ninety thousand. Then I thought we needed two million dollars to bring it to the next level so I scrambled around to get this two million. After looking at all the effort I put into raising a relatively small amount of capital, I realized that I wasn’t putting myself in the investor’s shoes. I was thinking like the businessman that needs money, putting my own needs first. Investors put their needs first.
Trying to raise the smallest amount of capital I needed was ten times harder than going for a larger investment. So I changed my approach and aimed big. I went out and borrowed over 28 million dollars, and didn’t do anything different other than thinking like an investor. A 20% return on 20 million dollars is going to make an investor very happy. It took me almost a year to find someone willing to invest two million in one of my companies. It took me six weeks to choose which of five investors I would partner with when I wanted to raise twenty-eight million. That’s the magic of thinking big. Most investors have what the businessman in me saw as a shocking approach to investing. They have fifteen or so investments and they know that most of them are going to fail, but they’re looking for the one or two homeruns. Some might be happy with a twenty percent annual return on their investment. If they lend one hundred thousand dollars, they would make twenty thousand back a year. That wouldn’t pay the lawyer’s time for drafting a contract. If they lend ten million, they stand to make two million a year. Now they are interested, so long as you can justify a valuation of twenty million.
This is a really important message that took me a long time to assimilate. I try to do it now, but I still hold myself back. Talking in terms of hundreds of millions of dollars feels fine to me today, where ten thousand dollars used to make me nervous. But if I’m really thinking big, I should talk in terms of billions. I’m still learning this lesson myself.
Photo: This is the patio of our Southern California home overlooking El Morro State Park, and that is Freddie, now an 8 year old mutt, who spends his days monitoring the migratory habits of grey whales. He is a strong silent type who seems to think his job in life is to, well, sit and stare… whether it be at a cupboard door, a window or a view.