Let’s be honest; The world is not a meritocracy. Those who come out of the money, go to elite schools, and have connections start with one foot up. “These identities can get you on doors,” said Kathryn Finney, author of Build the Damn Thing: How to start a successful business if you’re not a rich white guy. Everyone else – BIPOC, women and people from lower socio-economic groups – does not have the same access.
Whether you call them entitled or privileged, they are allowed to fail and come back. Consider Adam Neumann, co-founder of WeWork, who was publicly fired for his bad decisions and reckless leadership. He recently raised $350 million from Andreessen Horowitz for a new startup, Flow.
But those without access succeed even though they have to work much harder than those with access. Finney did it. She:
- Building a tech-enabled media company – The Budget Fashionista. She sought venture capital to persuade her audience to sell a subscription service that sells beauty products, similar to Birchbox, specifically for women of color. But VCs, who were mostly white and male, showed no interest. Eventually she sold her business.
- Became an editor at BlogHer, a community events and media company, where she learned how to scale venture capital-backed companies. BlogHer raised over $15.5 million in venture capital.
- Founded Digitalundivided, a program to close the funding gap for black and brown female founders.
- Developed the #ProjectDiane study to track the number of black and brown women who have raised $1 million or more in venture capital.
- Invested directly in startups and founded a venture fund, Genius Guild.
She wrote based on her experience build the damn thing in which she shows a roadmap for entrepreneurial success.
Whether angel investors, venture capitalists, or others are aware of this or not, they prejudge founders based on their experience. It’s called pattern matching and is an example of unconscious bias.
“If you don’t conform to your historical pattern of success, you’re considered ‘risky,'” Finney exclaimed. “Pre-seed startups don’t have business metrics. [Angel investors and] Early-stage VCs follow their gut instincts.” When you’re successful, don’t think about changing the way you work. The truth is, investors don’t tap into all the good ideas and know-how out there.
The problem with letting your gut feeling guide you is that it limits possibilities and innovation. Others see gaps in the market, have good ideas to fill them, and can be successful. According to data from Equal Ventures’ Richard Kerby, a whopping 93% of venture capital is managed by white men. Think how much more innovation, job creation, economic growth, and prosperity there would be if they broke their pattern adjustment.
As an underrated entrepreneur, you must build the path to access. “It makes your entrepreneurial journey longer,” Finney said. Your tips for success:
Do a self-assessment: Understand your strengths and weaknesses. You need to hire people who have strong skills where you are weak. “I do a self-assessment every few months just to make sure I’m focused on what’s right and have the right tools, resources, and people around me to get what I need done,” Finney said. She conducts a basic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats Analysis).
Know your core values: “I use my core values as my Northstar,” Finney explained. “It’s going to be particularly difficult for the metric I use to make decisions.” Entrepreneurs get a lot of advice, and often that advice is contradictory or doesn’t ring quite right. She asks herself, “Is the advice consistent with my values, is it consistent with what I believe to be true and how I live in the world?” Knowing your core values helps evaluate potential partnerships and exit relationships that aren’t more consistent with their values.
Determine the nature of your business: Being a startup founder and raising angel and venture capital sounds sexy. The reality is that 99% of entrepreneurs fail to raise equity financing and most people start small businesses. These companies can be high-growth, generating millions, tens of millions, or even hundreds of millions of dollars. However, they are not suitable for angel and venture investments.
Many people say that they are the founders of a startup. But startup founders typically create companies with the potential to scale globally into large companies. These companies are likely to be technology companies or technology-enabled. They have high upfront costs and their deals take time to build market traction, but when they do, they have hockey stick growth. Those who raise equity financing will exit their companies within five to 10 years by selling them or going public.
Small businesses are often locally oriented. They may use technology, but it’s not usually at the core of their business model.
Know your financing options: Whether it’s a startup or a small business, most start with a cash injection from the owner. If you are lucky enough to have friends and family who can afford it, they can gift, lend, or invest in your business. You can run a rewards-based crowdfunding campaign in exchange for an early product release or trinket. You can also run a Regulation Crowdfunding (Reg CF) campaign by soliciting relatively small investments from many people through online platforms.
Startups typically raise angel and venture capital. Start-ups and high-growth small businesses can fund their business through revenue-based financing and invoice factoring.
When small businesses need outside capital, they most likely seek credit from a bank or Community Development Financial Institution (CDFI). CDFIs are one of the best kept secrets in the world of corporate finance. CDFIs were formed to lend money at reasonable interest rates to underappreciated small businesses that found commercial banking too risky. Borrowers receive free advice to help them succeed. Technical support may include assisting entrepreneurs in preparing a budget with forecasts, preparing financial statements, developing a business plan, and improving or establishing a credit score. Small businesses can also consider a Merchant Cash Advance (MCA). These can be expensive so make sure you do your homework.
Build the damn thing: “I can’t tell you how many would-be entrepreneurs come up to me and tell me about their great idea,” Finney said. “I ask them to show me and they haven’t built it yet.” Her advice: “Get it out!”
Patience and perseverance are necessary: “It will take you away [an under-estimated entrepreneur] longer than privileged white men,” Finney said. It’s not fair, but it’s the reality.
How will you start your business?