The following article was written by Tuck Aikin several decades ago about the naïveté of many first-time entrepreneurs that think the system is unfair and rigged against them. Even though the article is several decades old, it is as true today as it was then. I hope you enjoy it.
A few Saturdays ago, on his National Public Radio show “Whad’ya Know,” Michael Feldman read a curious newspaper article that had been sent to him by a listener. As it turns out, the article was an open letter submitted by a fellow who was bewailing how the business world was unfairly frustrating his attempts to start a business.
Bankers wouldn’t lend him the startup financing he needed, he said, because he had no money of his own to invest in the venture. He said he’d never been late paying his bills but that he was a working-class guy and consequently hadn’t been able to save enough to put up as equity in his new business idea. Further, he complained that prospective outside investors wanted too much ownership in return for their funding, he described them as “greedy,” so he was making an appeal in his letter to readers’ sense of patriotism by helping him achieve “…every American’s ideal – to own [his] own business.”
He wanted people to send him checks in amounts of $10 to $100 so that altogether he would have enough to get his dream off the ground. Even though contributors’ donations wouldn’t be a tax-deductible charitable contribution he acknowledged, nor would the dollars sent buy any ownership, the aspiring founder said he and his wife would “…try to establish a charitable foundation to support the treatment of children with dyslexia…” if his venture was ultimately successful.
So, what do you think, would you send a check to this fellow (Michael carefully omitted the man’s name and address)? Me neither, But why not? Wouldn’t that just make us another part of the heartless ‘system’ that seems to reward the rich and repress the downtrodden?
Not at all. In fact, by ignoring his appeal, we would be doing him a great favor by potentially saving him from himself. While we might admire this man’s creativity and pluck in his novel approach to achieving his entrepreneurial dream, it is painfully clear in the emotionalism of his appeal and the naiveté of his comments that he is distinguished in his unsuitability to own and operate his own business. In other words, he most certainly would fail. The reasons are numerous, but here are a few of the more important ones.
First of all, a successful entrepreneur must be one who wants business success desperately enough to be willing, within ethical and legal boundaries, to do whatever it takes to achieve it. If our letter writer possessed this passion, he would have found a way to generate the equity he needed to get started, such as by severely limiting his personal expenditures so he could build up savings and by borrowing from friends and relatives, the typical way almost all businesses get started. This requires a good measure of self-discipline, a characteristic that is absolutely essential for business ownership. The marketplace cares not a whit for the individual (to paraphrase author Annie Dillard), so every business owner must subordinate his personal ambitions and aspirations to the dictates of that marketplace. An attitude of victimhood and self-pity have no place in the makeup of an entrepreneur.
An understanding, appreciation, and accommodation of other participants’ legitimate interests in the business world is important too. It isn’t the bank’s money that would be put at risk in a loan to this fellow – it’s primarily the depositors’ money, yours and mine, and we expect our financial institutions to manage it wisely. Why should we agree to have our hard-earned savings loaned out to someone who won’t even put some of their own money into the venture as well? The same goes for prospective investors. We should expect them to require substantial ownership interest in return for their investment.
Startups have a very high mortality rate – as many as 80% of new ventures fail in the first 5 years – so the potential for reward must be commensurate with the risk. That’s not greedy, it’s common sense, and it’s fair. The amount of ownership in return for investment is always negotiable of course, and relies on a number of factors such as the perceived likelihood and degree of success, the urgency of the need for funding, the thoroughness of test marketing and field testing of the product or service, and the diligence used in preparing the venture for the initial launch. This isn’t “wheeling and dealing”, it’s working to find a win/win agreement that balances all parties’ legitimate interests and desires.
And finally, what about the pledge to “…try…” to establish a charitable foundation if the venture is successful? Do you think you could take that commitment to the bank? I don’t either.
Tuck Aikin was a former SCORE colleague of mine for many years until his retirement. Tuck is a prolific writer and wrote small business-themed articles for the Colorado Springs Gazette for many years. As a co-mentor, Tuck was my inspiration for me starting this blog. The preceding post is reproduced with permission from the author.
