Give it up and have a doughnut
So you have an idea for a computer product? So you spend months, maybe years perfecting it? It seems you are, at worst, just as good as the product streaming in from south of the border – and at best an awful lot better.
You produce an excellent manual complete with recovery procedures for all sorts of problems. Amazingly, you make sales in Canada to a rare group of people who are not mesmerized by U.S. and/or Silicon Valley labelling. So you dream of success, recovery of your savings and RSPs, payment back of family loans, recompense for your 100-hour weeks and recognition by your peers in the Canadian computer industry. There is one snag, however – you need financing.
As a neophyte you sit in front of your friendly manager of that big bank (you know the one that proclaims loudly that it supports small businesses). Well, it seems those proclamations of helping the small businessman are only intended for the usual loans – no entrepreneurs wanted here! Put your house up as collateral and you get your money – sound like a mortgage?
Undaunted, you approach the “investment companies.” This will be easy, you think. You have a product that works, it sits nicely in the burgeoning computer market, and you have happy customers. The press screams with articles on “investment companies” that are aching for companies with excellent potential – note the word “potential.”
Even the government has made things easy for certain “funds” companies so capital is readily available. After consulting the telephone book, scouring the press and getting tips from business friends, you begin your telephone calls. But suddenly the long list of potential investment partners is drastically stunted.
You find that Investment Company A only finances “start-ups” (where were they when you needed them?) Investment Company B only invests in five million-dollar chunks. Investment Company C does not invest unless you have one million in sales and are profitable (expansion capital they call it). Investment Company D will only invest if you obviously do not need the money, can give a fantastic return, and you give up control of the company. Investment Company E wants your company, your first born, your house, your grandmother’s pension and your lawn mower. Investment Company F will lend you the money at a high rate but failure to pay off will result in your kneecaps being broken – each month!
But success at last, Investment Company G wants to see a business plan, which you submit with supreme confidence. What could be a better bet than a developed product with a ready market, happy users (albeit local) and supporting documentation more impressive than the Vatican Library?
They meet with you in their sumptuous boardroom and tell you with perfectly straight faces that you do not meet their criteria. One, you cannot show how much you lost producing the product and that “sweat equity” is valueless. Two, you have competition. (Wow! What a surprise!) Three, your projected sales are pessimistic and show no mammoth growth. Undaunted, however, you go back to the drawing board. A spreadsheet program allows you to easily change your projected sales so now you have massive growth, and this you resubmit.
Investment Company G responds and says you now have a real good business plan with the type of growth they would go for – but it seems they have just invested in a small-town tannery operation. Apparently it has been bankrupt more than once but then “they can show how much they have put into the operation.” There are also five other similar operations in the same town but they are not competition – “they use different processes.”
Discouraged? Well, so you should be. But why not do the right thing and get a franchise for a hamburger joint, or a doughnut shop (“donut” if you want to encourage U.S. culture.) After all, it is a valuable service and how many times have you heard the government pushing our “service industry?”
Robinson has been involved with high-tech Canadian start-up companies – including Cisco, Sytek, and Comten -for more than 30 years. He can be reached at [email protected].