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Why You Should Not Have Too Many Leaders
Question from Gab. Hi Sean, I’m a young entrepreneur who put up a marketing startup where I have six other co-founding members. Wow. That’s a lot of co-founding members. What do you think are the advantages and disadvantages of being seven partners in a service industry business? Do you think it’s going to be profitable in the long run? Are you already into venture capital? What are your tips if I plan to put up a VC one day?
Well, Gab, congratulations. Usually when you start entrepreneurship young, that’s a good thing because you have a lot less to lose. You can take a lot more risks. That’s a good thing about it.
You have six other co-founding members, in my opinion, that’s a lot. When someone wants to start a new venture with me, what I usually say is, I would either be a silent partner where they can ask for my advice, but my decision is, it doesn’t matter if I decide something or not. So only a slight silent partner. Either I’m a silent partner where I can just give advice or I’m the majority. Anything in between, I don’t want to do that because I really don’t like having conflict with other people who are invested monetarily or industrially in the business.
So I’m either of two extremes, personally, that’s how I do it. Either I’m the majority owner where I make the decisions, or I’m a silent partner where you guys make the decisions, but if you want for my advice, I would give it. Why do I do it that way? Because it’s hard when you have a lot of heads making decisions. If there are a lot of heads, we can no longer call that a human. That’s called a monster.
Applying that in business where you have a lot of heads butting against each other, when you have disagreements in decision-making, you’re already fighting against each other internally, and then, there are competitors out there who also wants to kill your business or get more of your business, you’re fighting fires inside and outside, that’s not healthy for a startup. I think if you guys are seven partners, that’s tough. That’s what I can say. It’s going to be tough. When you’re starting out, it would be fun. It would be fun because there’s many of you. You will help each other, there’s many of you, and that could be fun.
But long term, problems are going to crop up. You have to systematize things. You have to scale it up. You may have to have other rounds of funding in there. It’s going to be tough. That’s what I can say. You have a lot of decisions to be made, and every time you have decisions, you have to wait for your co-founder’s votes. I think it’s just tough doing it that way. Unless you have your departments to run. Each of you already has your departments you decide on who gets a veto vote.
Like for example, the president, if you appoint, one gets a veto vote where his vote is always the one followed because he’s the most invested in the company and he’s the most knowledgeable. He makes really good decisions or she makes really good decisions. Or you just trust her a lot, then you give her the veto vote. So whatever the decision he or she makes, that’s it. Then I think that would work better. If you don’t have anything like that and you’ll always have to wait for everyone to vote, it’s going to slow your startup down.
Am I into venture capital? No, unfortunately not. What are tips if I plan to put up a VC one day? I might not be the best person to answer that because I don’t have my own venture capital firm. If you have your own VC firm, that’s going to be a lot of money. We’re talking about billions of pesos. That’s because if you’re a VC, you should be able to entertain a lot of companies going to you for funding. And you should be able to also pool funds from different sources – banks, other investment companies, angel investors. You should have the ability to pool those funds and they should trust you enough that you could invest their funds somewhere in a startup or in a company that’s already having traction, sales, user sign ups, et cetera.
So I haven’t done that yet. Maybe someday. I don’t know. But I’m not sure if that’s for me though. I like investing. It’s just that I don’t like being the one investing other people’s money. I think that’s too much responsibility. I also don’t take on venture capital for my businesses and that’s because usually venture capital firms want to enter with a vote and a decision. They would push you and drive you to perform more and more and more. And that’s going to be more and more and more stress for the CEO and founder or the president.
And since my purpose in starting my businesses is to have more freedom with my time so that I can spend it more on family or things I want to do. That’s my North star. That’s why I started business. If I take on VC funding, that’s going to be gone. Because even if I have a lot more money to grow the business and fund it and recapitalize it, but I have VCs breathing down my neck. It’s not a trade that I’m willing to make. Because I started with a time freedom goal. I would rather have more time than more money or a bigger company. That’s why I don’t get VCs.
Another question from Em. We have a 2.5 million solar project, and the project was already awarded to us. We won the bidding, but our main financer backed out because he was affected by the typhoon. Do you know any organizations or groups that finance projects? If none, what is the best move and right place to look for investors?
Yeah. I know some people who might want to invest and finance your project. But you have to make sure that you have the right pitch deck. So you have to show these connections of mine, that your project actually makes good financial sense. And their returns that they would be looking at versus the time that it would be returned to them is very important.
I’ll give you an example. There are some investors who make 12% to 20% per annum. That means 1% or more per month. So if this investment opportunity you have with your 2.5 million solar project will yield less than 1% per month for them, they’re probably not going to invest there. So I’m also a person who’s looking for that kind of yield 1% or more per month. My eToro portfolio is definitely making more than 1% per month. So if I’m going to invest in your project, it has to yield more than 1% per month. Otherwise, it doesn’t make sense. I’ll just put it on some other investments.
So you have to make sure that you’re ready with your pitch deck, and you’re going to show them exactly how this project is going to make money, how much money it’s going to make as a profit, how it’s going to be split, how are you going to be returning the money, how they’re going to be paid back the money – bank deposit, cheque, PDC . And so, there are those things that are going to be questions in the investor’s head and you have to be ready to answer that. Better if you already presented it on the pitch deck. That is my opinion. It would be best if you present it in the pitch deck itself. That way, you’ll look ready when attracting those investors. Because it’s hard to ask for investments. It is. Because you’re going to be held accountable for that money and you have to have a well laid out plan for everything.
So I told you what I’m looking for. If someone’s going to ask me for money for an investment opportunity, I look for more than 1% per month. I look for everything clean, how you are going to be returning the money, et cetera. So yeah, I can connect you, but you have to prepare for that presentation.
Next question. I have a friend that is invested in a property, but due the pandemic, he’s having a hard time for funds to pay the loan. He still has a year and a half remaining to pay the land. What do you advise him to do? Can he work this out with a bank for better terms of payment?
A better payment term can only work if you’re making money, if you have positive income, if you have more things coming in than going out. So if you don’t establish a positive income even if you work for better terms of payment, that’s not going to help. If he or she doesn’t have positive income, I suggest that this is the first thing that he should do; Find good work or start a business that can work during the pandemic. Then see if you still need better payment terms. If you do, definitely negotiate it with a bank. They may increase the interest for longer term. But if that’s what’s going to work, instead of them forfeiting, or closing, or grabbing the land, then you have to do what you have to do.
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