The importance of Non-Creativity

I want to start by making one thing clear.  Creativity can play a huge role in any startup or Fortune 500 company.  Certainly, those people at Apple know a thing or two about creativity. But as I grant you that, please grant me that entrepreneurship is possible without any creativity.  And in fact, that is the type of entrepreneurship that most of us should strive for. Good old fashioned non-creative entrepreneurship, you know, copying!

The Global Entrepreneurship Monitor, published by Babson College and the London School of Economics, reported that 93% of businesses world-wide are copies of other businesses. Hyatt and Hilton. Nike and Adidas. McDonalds and Burger King. Coke and Pepsi. If you look around, there are many thousands of restaurants and day cares for kids and bookstores. Is it illegal to open another? Is it creative? Does your bank account care as the money starts to role in?

Imagine sitting around with your friends at a bar and announcing you are going to start a business.  They are impressed, jealous, and curious. You describe the idea in detail and how you plan to succeed. Soon, you sense they want in. Eventually, one asks, “How did you get this idea?”  You say, “Saw it online on a cool biz website.” Do they lose interest? No, they still want in. Do you lose your street cred because you went online, researched “new business ideas” and found a cool one?  No, they still want in.

Or, you go to your bank to deposit your first million in sales.  The teller pulls up your account and announces, “Oh, I see you got your idea from a magazine, saw some guy was successful across the country in a business, so you decided to start that business here in our town. Yeah, sorry, I have to take 15% off the top for lack of creativity.”  No, that doesn’t happen.

People want to be entrepreneurs and sit waiting for a lightning bolt of creativity to hit them. It may happen, or they may die unfulfilled. Instead, remove creativity from your definition and start an organized, methodic study of a business to start. Allow a certain amount of time, create a list of criteria, and start researching business models.  Make a list of a hundred, yes, ONE HUNDRED. Please do not tell me that this is impossible until you have tried for a month.  Google “new business ideas” before you give up!

The origin of your business is not important.  No one cares! Has any satisfied customer ever said the words, “I was really happy with your price and service, would recommend you to my friends, UNTIL I learned you got your idea 7 years ago from a search online”?  I believe these words have never been spoken or written until right now.

Entrepreneurship is about solving problems with limited resources. Do you have a problem?  Know someone with a problem?  You qualify!

Allow me two final thoughts. First, of course I am not advocating stealing. That is different. Copying is okay. Borrowing is okay. Stealing is not. Second, creativity and innovation are different. While it is okay to copy an idea, you must make it better. If you start a bookstore, make a list of everything that affects the customer experience, the parking, signage, name, smell, coffee shop, amount of books, ease of checkout, music, etc. And then figure out how to do each one in a way the makes your customer say, “I saw a place like this across the country, but you do it lots better.”

Start Up Financing

Friends and family financing is popular because it is easy to get a hearing from the people who know you best and they are positively inclined to say yes. But there are some negatives as well. It’s tough to know how to price and structure an investment where the investors are close friends or family. You don’t want to take advantage of them and they may not be sophisticated enough to know what is a good deal and what is a bad deal.

And friends and family often cannot come up with a lot of capital so unless your business doesn’t need much funding, this will not be the only round you do. But friends and family can get you into business and give you some time to create value that other investors will recognize and value.

Probably the most tricky part of friends and family financing is that you really don’t want to lose money that friends and family have invested with you. And most startups fail so the chances that will happen are high. I would encourage entrepreneurs who take funding from friends and family to be very clear about the risks and downside. I would also suggest only taking capital from friends and family members who can afford to lose the investment. That way, if the investment does turn out to be bad, at least you won’t lose valuable relationships. Even so, it is easier on the mind to be doing a startup when your capital comes from professional investors than your loved ones.

I would recommend doing friends and family financings as convertible notes with a discount and a cap on the valuation. That way you don’t have to worry about how to price the investment. A 20-25% discount from the next round is appropriate. The valuation cap is going to vary depending on the size of the raise and the size of the opportunity. I’d suggest a cap that gives the friends and family around 10% of the business if things work out. But that is just a suggestion. A 10% interest will not be appropriate for every friends and family investment.

Friends and family funding is the most common form of startup financing but also the most tricky in many ways. Be careful to do it right because there’s a reason why these people will back you when nobody else will.