Outside money is Plan Z

One of the first questions you'll probably ask: Where's the seed money going to

come from? Far too often, people think the answer is to raise money from

outsiders. If you're building something like a factory or restaurant, then you may

indeed need that outside cash. But a lot of companies don't need expensive

infrastructure--especially these days.

We're in a service economy now. Service businesses (e.g., consultants,

software companies, wedding planners, graphic designers, and hundreds of

others) don't require much to get going. If you're running a business like that,

avoid outside funding.

In fact, no matter what kind of business you're starting, take on as little outside

cash as you can. Spending other people's money may sound great, but there's a

noose attached. Here's why:

You give up control. When you turn to outsiders for funding, you have to

answer to them too. That's fine at first, when everyone agrees. But what

happens down the road? Are you starting your own business to take orders

from someone else? Raise money and that's what you'll wind up doing.

"Cashing out" begins to trump building a quality business. Investors want

their money back--and quickly (usually three to five years). Long-term

sustainability goes out the window when those involved only want to cash out

as soon as they can.

Spending other people's money is addictive. There's nothing easier than

spending other people's money. But then you run out and need to go back for

more. And every time you go back, they take more of your company.

It's usually a bad deal. When you're just beginning, you have no leverage.

That's a terrible time to enter into any financial transaction.

Customers move down the totem pole. You wind up building what

investors want instead of what customers want.

Raising money is incredibly distracting. Seeking funding is difficult and

draining. It takes months of pitch meetings, legal maneuvering, contracts, etc.

That's an enormous distraction when you should really be focused on building

something great.

It's just not worth it. We hear over and over from business owners who have

gone down this road and regret it. They usually give a variation on the

investment-hangover story: First, you get that quick investment buzz. But then

you start having meetings with your investors and/or board of directors, and

you're like, "Oh man, what have I gotten myself into?" Now someone else is

calling the shots.

Before you stick your head in that noose, look for another way.