Small Business: Should Your Startup Include Investors?
Opening a small business with big backers
BLOG – It can be tough to start a small business, for even the smallest of businesses need capital to get themselves off the ground. For some businesses, the answer is to look elsewhere for startup funding, which is why it can be a good idea to open a small business with big backers.
The pros and cons of investors
What can investors bring to the party? Well, there are other advantages beside their investment capital. The first is the relative freedom that their money delivers. Having significant investment in your small business means that even though you are still keeping an eye on spending, you are relieved from having to watch every cent. This freedom from money worries means your vision can broaden. With enough financial backing, you will be able to operate efficiently, but most importantly, look forward to and plan for the day when you can grow your business.
A second major advantage is networking. An experienced business investor will be able to introduce you to many new clients. This advantage should not be underestimated, because new clients will make a significant contribution to the first advantage of the business expanding. As well as new clients, they will also have a network of advisers, which may include financial and other professional services, at no additional cost.
Having investors – people who think your business model and idea are going to be profitable – results in a stronger brand image. If your business can attract these types of people, then you are going to appear successful right from the beginning of your venture. High-profile investors will do this automatically. Just imagine having an investor who can afford to stage an event like Najib Mikati’s wedding. The former prime minister of Lebanon, Mr Mikati is the founder of a telecommunications empire, and invests in businesses he thinks have potential.
Another advantage of having an investor put money into your business means they have a reason for wanting you to work hard and do well. This provides excellent motivation and ensures that your enthusiasm does not begin to flag when the going gets tough.
It should be noted however, that there are also cons to having a business investor. While money worries are lessened, you will be relinquishing some control over your business. You may start selling one product or service that becomes successful, but then change your mind and want to head in a new direction. An investor is unlikely to let you take such a risk. Your investors will have put money into your business solely to make a profit, but if you have a different vision, such as accepting lower profit margins for greater creativity, you may have a fight on your hands.
While having investors in your business can be a smart move for the success of your enterprise, it is important to realize you will be surrendering certain rights when you do so. To make an informed decision about whether to bring on investors upfront, you’ll need to weigh the pros and cons to determine how many compromises you are willing to make. Good luck with your venture.