Shows like Shark Tank are introducing more people to entrepreneurship, or at least a part of it, than ever before. Yet, despite entrepreneurship’s popularity, the number of people starting new businesses has actually gone down.
In 1985, according to data from the Census Bureau, about one in eight companies was less than a year old. Thirty years later, in 2015, that ratio was approximately one in 12. I can’t help but wonder if the attention on entrepreneurship brought by shows like Shark Tank is contributing to the slide in new businesses. Hear me out.
Shark Tank gives you the impression that pitching your idea to investors and raising money are significant parts of being an entrepreneur. The curricula at many of America’s premier business schools reinforce it–and it’s not true.
As a point of fact, only five in a thousand companies that start will ever get venture capital. A third of small businesses get started with less than $5,000. I worry that placing an undue emphasis on raising money will discourage people from starting businesses because it places such an early hardship on starting out.
You don’t need investors to start a business nor should you necessarily seek them when you start out. At a minimum, you certainly should be aware of the many pitfalls of raising money from venture firms. Raising outside capital dilutes your ownership interest, hurts your ability to run your own business, and diminishes your freedom–a key reason why many entrepreneurs start out in the first place.
If you absolutely must raise money, do so deliberately. Be very cautious about the people from whom you raise it. I’d need a few textbooks to have enough room to tell the stories of entrepreneurs who didn’t understand this pitfall.
So, if raising money like you see on Shark Tank isn’t entrepreneurship, what is?
It means starting and running your own company, not just completing a business plan or having a great pitch. Most businesses that are started are service businesses, many of which can be started with little money. As of 2016, according to the Census Bureau, there were more U.S. businesses in the “professional, scientific, and technical services,” “other services,” and “construction” industries than anywhere else.
If you wanted to start a painting company, you’d work hard to get customers through flyers, low-cost social media marketing, Craigslist, and business cards. It’s a humble way to start, and literally every business owner I know (including millionaires and billionaires) started out this way.
After getting a small book of business and serving customers, you’d grow that business organically and from profits–which is, well, also very safe. How would you get money for operating costs without pitching your business to investors? You’d get a customer for X dollars and then an upfront down-payment of 20-30 percent of X to finance the job. It’s that simple.
Business schools and the media have it wrong–very wrong. Their focus on raising money and pitching investors is a misrepresentation of entrepreneurship. You won’t need unnecessary obstacles and challenges to starting a business–you’ll have plenty. I say this from the perspective of having started companies using outside capital for some businesses, and doing so with no outside capital in others.
Remember that some lesser-known companies such as Facebook and Microsoft got started with little-to-no capital and by being scrappy–an attribute that’s so American and so right.
