Singapore Entrepreneurs

When should an entrepreneur fundraise or bootstrap? Mícheál Collins, our guest contributor from Collins Kumarasinghe Associates and MBA Graduate from INSEAD, offers seven interesting questions for the entrepreneur to work out which route they should take in setting up their own business enterprises.

An article contribution by Mícheál Collins, from Collins Kumarasinghe Associates and MBA Graduate from INSEAD.

Entrepreneurs in general, tend to be an impatient lot sometimes and they are keen to bring their idea quickly to the world and make a success of it. Many entrepreneurs also seem to have the mindset that with all the money they need, they can achieve their goals and overcome any obstacles that befall them.

It is true that when an idea is as ready as it will ever be, it is then time to pump resources to grow it. But an impatient entrepreneur will usually feel that that time has come sooner than would an investor who writes the cheque. Investment funds are all too often viewed as a painkiller for the headache of getting off the ground. However this is not what investment money is for.

Investment money should be like the last piece of the puzzle you want to slot in, having put all the other pieces together. It should not be there to “buy you time” while you figure the product or service out, or to “buy market share” once you think
you are ready to launch. Investment money is the last requirement (if required at all) in the arduous and intricate process of bringing your value proposition to market.

Bootstrapping the business has many strategic benefits for the entrepreneur that allows the product or service to mature and prove itself before seeking growth. Before considering investment funds, the aspiring entrepreneurs should ask themselves:

• 1. Is there a demonstrable market for my value proposition? Having a cool idea that you enjoy
  being involved in is not remotely correlated to a market gap or current market demand. Unless you can sell a few of your products that you make from your own bootstrap funds, there is little point in seeking investment funds. By staying lean you are focused on spending as little money on doomed ventures and keeping yourself busy with what really works (i.e. brings in cash from a client who is willing and able to pay for your product or service).
• 2. Is my value proposition ready for market? Have you tried, tested, piloted, redesigned your value proposition and receive feedback from customers? Does it look like you are in control of the production process, able to answer customer queries with confidence, produce, market and deliver the product or service in time? If the answer to these questions is no, then you are not ready to receive any investment money.
• 3. Can I start small and grow big? If you wish to develop a hi-tech product that requires sophisticated machinery and much traveling to market it, then you would need funds. But the vast majority of businesses can start in a local market, prove themselves there and grow through excellent execution, patience and attention to consumer satisfaction.
• 4. Will there be zero waste of investment capital once I receive it? The question you need to ask is whether you have mapped out the complete eventual use of your investment capital. While circumstances will naturally change on a daily basis, you should not seek funding when your understanding of the use of funds is not clear in your mind.
• 5. Can I find alternative ways of financing where I don’t lose majority control or become indebted? One method which has worked extremely well for my firm is selling the product upfront and the client’s payments pay for the development of the product on a rolling basis. Another innovative method we use is, to find partnership or joint venture model with someone whose interests are aligned with ours and who is willing to provide production, delivery or management of the product or service in order to share the benefits of the product’s success.While this may seem like “giving away” some of the product, it should be borne in mind that as you become more secure as the business progresses, you are freer to chart your own course on new projects which can be built on from your collaboration. Few “ideas” are “world beating killer application” type ideas that you would not want to share with anyone.
• 6. Do I want the pressure of being responsible for another’s money? You will have to manage a long term relationship with an investor if you do receive any funding. As stated so well by an investor in the Art of Entrepreneurship video series, the relationship is not about saying “here is my business plan, now can I have your cheque?” Your investor is your constant business partner who is risking real liquid funds up front on your ability to execute and you need to have utter respect for this.
• 7. Are all the kinks worked out? Akin to the “ready for market” point above, it is a good idea to ask yourself whether your value proposition has demonstrated longevity in the market before seeking to grow it further. Pumping funds into a flawed process or giving untested managers the stress of suddenly handling a larger, more complicated role could break the company apart. It is worth reading on the ‘Theory of Constraints’ or how to ensure your product is being produced as efficiently as possible (http://www.tocforme.com). Only when all the kinks are knocked out are you ready for the elevation step of adding resources. Until then, you have plenty to do before seeking money.

Conclusion
Investment funds are not means to an end, they should be a part of a business plan and well-thought through. Bankers or investors are partners, not altruistic “angels”. At the end of the day, as described by one of the hi-tech entrepreneurs featured in the Art of Entrepreneurship video series, “Investors are not in it for how interesting the project is, but for what returns they expect to get from it.”

Try and get by without too much money. Look for creative ways to move forward and the opportunities in partnerships. A leaner fiscal sense will serve you well as an entrepreneur because you will understand where the money should be placed to add value instead of purely letting it go wasted.

Investment money is not a be all and end all. Remember that money is precious and once spent, can’t be regenerated too quickly; investors know this all too well.

Think like an investor and act like an entrepreneur.

Related Links from Mícheál Collins on this issue:
[1] Bootstrapping your Startup, by David Worrell from Entrepreneur.com
[2] INSEAD Guide to Entrepreneurship in Singapore, which will be integrated soon with the SPRING sites.

About the author: Mícheál Collins is from Collins Kumarasinghe Associates, a Singapore-based consulting firm that aids companies to execute their business plans and advises on career building through the GMAT-Zone.com service. He is Executive Director of the Singapore Irish Business Association and sits on the board of EuroCham. You can check out his website www.colkum.com

Editor’s Note: This article is reproduced with the permission of the author and is also published in the ACE website.

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