OPM Avoider

When thinking of starting a business, the first question most people ask, “Where is the money going to come from?”

My answer: “When you really need it, it will come from wherever it is at that time.” 

Many success gurus and salespeople often promote using OPM (other people’s money). This may make sense if you start an asset-based business, e.g., a hotel. Or, maybe you are looking to develop a vaccine for an incurable disease. You need highly qualified people to do the research. In such cases, you may need investors. But more often than not, when starting a business, the necessary capital is minimum or none.

I am a consultant and an author. I work solo, so do IT contractors, project managers, marketing professionals, Yoga teachers, and hundreds of other skilled workers. They run their shop alone.

No matter what kind of business you are starting, avoid outside funding. It has drawbacks.

Losing Control

Debt or equity, the investors will have a degree of control over your actions.

As a builder, I bought land and raised construction loans from the bank. Anyone who has taken a construction loan will tell you the number of conditions a bank will impose. Some of them will hinder project efficiencies.

In other businesses, too, initially, it is honkey-dory when all equity investors agree. What happens if the economic environment takes a sudden hit—COVID 19 pandemic, for example? Will you be in your own business to take orders from someone else?

Cashing out

In the mid-1970s, SEC further deregulated the financial industry. After the change, the types of people for the director and senior positions in corporations changed.

Earlier, the head of an American company was most likely an engineer or a major in industrial management. They felt ownership of the company and cared for the long-term well-being of the business. After dismantling, most came with experience in financial wizardry. Their focus was short-term, and loyalty was to themselves. Maximizing the share price in the near term was their only priority. This is the “Wall Street” economy.

This is also the “Outside Investors” philosophy. They want their money back—and quickly (usually three to five years.). This focus to cash out rapidly almost always damages the longer-term health of the business.

Distracting and draining

Raising funds is difficult even for people who have successfully started a few businesses before. For a first-timer, it could become a full-time job. It could consume months or even years of meetings making pitches, and negotiating the terms and conditions. So, what happens to the actual business you are starting? It is a massive diversion.

Good deal or bad deal

The worst time to raise funds is when you are starting out. You are at the high-risk stage, and your success is an assumption. If you do not have a track record of starting or running a business, you are at even higher risk. You are not going to get a great deal.

Find a way to start your business on a shoestring. Before you make any significant financial commitment, get customers first. Focus on building what your customers want. Once you have customers and performance to show, you will have a lot more leverage in negotiating outside financing.

Let OPM be the last resort.