I have the opportunity to hear the business challenges and success stories of entrepreneurs every single day. Most of what I hear has to do with the business challenges, because most companies are struggling with challenges in their business.

So, we have discussions about how these business challenges can be addressed. During these discussions there’s a recurring comment that falls from the lips of almost every struggling entrepreneur: “I just need money. If I could just raise business capital, we would be absolutely golden.”

The reality is that in most cases, having more money isn’t always the best solution. That’s because the real problem isn’t about having more money to spend, the problem is that the business model isn’t sound or the management team isn’t operating effectively.

The fact of the matter is that thousands and thousands venture capital financed companies end up in failure despite their (temporarily) deep pockets.

Trust me, I really do understand the temptation to believe that money in the bank is the ultimate solution to every problem. I’ve said it before, “…Oh, the things we could do with a little more money!”

That kind of thinking is a dangerous trap.

Here’s my bullet-point lecture on changing that kind of thinking:

• If your business model is really worthwhile and there is true demand, then you will either grow naturally with very little capital or when you talk to investors they will immediately want to give you money.
• If your business model was working before; you still have customers, you still have revenue, you still have a viable product or service, then there are still multiple solutions that are better than raising capital–start by slashing costs.
• If very few people are interested in buying your product, or worse, if only your family says what you are doing is wonderful; then get over it, let go, and move on.
• Forget about the stories of the guys who come up with a neat idea, raise gazillions in a couple months, and sell out for billions in 3 years. That really can’t be planned and aiming for that will hinder the perspective that you need as a successful entrepreneur.
• The best early stage companies are able to show real proof of concept without spending much money at all.
• If you can prove through modest, shoe-string testing, that your business model really works, then you will have no problem raising money–if you need it.
• If you are seeking business capital to solve a problem but you still haven’t worked many days all through the night to find a solution…you’re not deserving of investment capital anyway.

About 8 years ago I received some of the best business advice I’ve ever been given.

I had just raised $10 million from Venture Capitalists. My attorney and I were preparing for my first board meeting as Chairman and CEO. I had 4 demanding VC’s on the board, and we didn’t have much margin for error. (By the way, one of the best ways to avoid getting slammed by investors is to make sure you’ve set yourself up to Beat Projections–go read that link!)

As we finished our preparation, she said to me, “I have one piece of advice for you as you manage this Board. No surprises, Jeff.”

She went on to explain that most entrepreneurs, and almost every human being for that matter, have a terrible tendency to delay the delivery of bad news. Until it’s too late. Until everyone is shocked, surprised, and sour.

She said, “Jeff, if things aren’t going well, if you see problems on the horizon, then you must let your investors know about it as soon as possible. I promise that you’ll earn their support and gain credibility with them. And you’ll uncover solutions from them….before the problems are too large to fix.”

I’ve taken that advice and it’s served me well on many levels. In every possible area I try to uncover the truth about what’s not working (or what really is working) and expose it immediately. That goes for key personnel, with marketing projects, business plans, financial processes, and on and on.

Successful entrepreneurs see the wisdom in acknowledging what’s not working and doing so as quickly as possible. Then, disclosing it to those who are involved. Even at the expense of discomfort, disappointment or embarrassment.

This approach puts the pain front-and-center and gets everyone in the “real world”. Knowing the hard truth about where your business really stands at any given moment is crucial.

Most failed companies or programs can trace their failure back to a critical point where some painful reality about their business departed from view. Bad news was muzzled and instead, positive reports, feel-good optimism, and all-comforting hope carried the day.

They say “hind-sight’s 20/20″. That’s true, but it’s also a cop-out. An honest evaluation of real time results is close to 20/20 also. And operating effectively in the here and now is where great entrepreneurs rise to the top. The problem is, most entrepreneurs don’t have the stomach to face the hard truth at the very moment it comes to light.

The sooner you can learn to embrace and communicate the truth about your business…and that means the good, the bad, and the ugly, the sooner you’ll ensure a higher likelihood that your business will become a success.

Remember, “No Surprises.”

Check out these great posts to find out more about this topic:

Honesty in Business - Does It Pay?

Honesty and Business - The Way I Like To Do It

Truth: How Great a Virtue Is It In Business?

When I raised my first significant round of venture capital financing, the firm I worked with was quite reasonable. We were very lucky in that regard.

They allowed me and another founder to sell of some of our stock and get a little financial reprieve from the sacrifices we had made over the previous three years. It wasn’t a massive sell-off, but it helped.

Most investors, especially venture capital firms don’t go along with that. They believe that it’s better to keep the founding executives “hungry”. They believe that if a founder gets a little cash, they’ll lose their drive and commitment. I think that’s an interesting position for a VC to take, considering the hefty management fees they pocket after institutional investors give them their capital. It doesn’t seem to diminish their hunger so why will it dimish the hunger of their portfolio founders?

It certainly didn’t diminish my hunger. In fact, having some financial relief eased our stresses and helped us work more effectively.

If you decide to look for funding and you have something that interests investors, be sure to take the time to look for an investment team that will keep your needs, your interests, and your input as a founder, in mind.

The Founders Fund is a venture firm that seems to be doing just that. Specifically, they are taking a unique and refreshing approach by allowing their entrepreneurs to sell stock to future investors through their Series FF preferred stock.

Take a look at this recent article about The Founders Fund in Inc. Magazine, “Putting Founders First”. It’s a refreshing “pro-entrepreneur” angle that other VC’s will be wise to consider.

Check out these great blogs for more information on this topic:

Why Early Stage Venture Investments Fail

Startup Success: How To Find Venture Capital

Venture Capitalism - Luck or Science?

Well, our big brother Greg made quite a compelling pitch to the investors on American Inventor last night.

We sure are proud of him!

He really did a few simple things very well that so many entrepreneurs fail to get right. Usually, an eager entrepreneur will take far too long to get to the point and fail to paint a crystal clear picture of the value of their idea.

I think Greg did a great job of getting straight to the point, and made a compelling case.

Here are three things he did well, that anyone seeking investors can learn from:

1. Explain your concept quickly and clearly. Greg didn’t mess around with a long preamble, he got right to it and explained, “My invention is a fire protection system for your Christmas tree.” Simple, clear.

2. Quickly identify the problem you are addressing and the solution you provide. Greg hit this immediately with a powerful video clip and some quick stats.

3. Show passion and create emotion. Greg hit it out of the park on this one, sharing a genuinely heart-felt example of why this product is so important.

In case you missed the episode, here you go:

Check out these great posts for more information about this topic:

Pitching to a VC? Read this

10 Tips for a Successful Entrepreneurial Pitch