Successful Entrepreneurship Is Not About Winning A Popularity Contest With Venture Capitalists Jul 25th 2013, 09:22
By Ruslan Kogan
Entrepreneurs are inventors and athletes in one. They are inventors because they need to see the marketplace like nobody before them has seen it, understand all the market dynamics, and invent a product or service that enhances people's lives. They are also athletes, because once they have come up with the invention they need to work incredibly hard to turn it into reality, no matter what obstacles the business environment throws at them.
Ever since the movie, "The Social Network," came out I've seen "Entrepreneurs" pop up everywhere with one simple goal – to find a venture capitalist to back them. I even get people emailing me and adding me on LinkedIn LinkedIn with the self-proclaimed title "Entrepreneur"!
It's great that the movie has promoted entrepreneurship, but many people need to realise that things are much tougher in real life than in movies. I didn't watch Spiderman and decide to try become a superhero.
Too many "Entrepreneurs" believe the end game is to find a VC to back them. They throw hundreds of business ideas around at any given time without giving true conviction to any one idea.
I had an "Entrepreneur" approach me at a bar once and asked if he could pitch an idea to me. I didn't like the idea, so he reeled off ten others he was "working on," and asked me which one he should enter into the "pitching competition" he was participating in at an "Entrepreneur's Convention." You can guess what my response was.
Being an inventor, an entrepreneur needs to have conviction in his or her own idea, and know that it would work as a real business. That the conviction is so powerful means entrepreneurs would logically not be out there seeking the approval of others, whether it's friends, family, or even VCs. Before starting Kogan, I had to ignore the advice of my mother ("Why are you quitting this great paying job to become a TV salesman?"), supposed business experts ("No-one will ever buy TVs online without seeing it first!"), and friends ("This is not going to work! People won't buy anything other than books or CDs online".)
Entrepreneurship isn't a storytelling competition, it's about inventing something, believing in it, and having the passion and conviction to prove that your invention works no matter what anyone else thinks.
I know what you're thinking. What good is an idea if you don't have the funding to execute your plan? Good question.
I had $0 in the bank and no investment in 2006 when Kogan.com was getting off the ground in my parents' garage. I quit my full time job to start the business, and taught a few IT classes part time at Monash University to help pay the bills. If you follow textbooks, I would have needed at least $10M to start a consumer electronics brand. I would have needed showrooms all around the country, retail supply agreements with credit terms, and significant amounts of stock. Obviously $10M would have been nice, but it wasn't an option. I knew the idea I had for a fully vertically integrated consumer electronics brand that sold exclusively through an online channel was a winner, and I was very passionate about making it happen. I just needed to overcome the barrier of not having any capital to start the business.
I started selling stock that was yet to arrive in the country at heavily discounted prices (a presale). Shoppers would make extra savings, but would have to wait a little longer. It was a clear win/win scenario: customers save more money, I can start the business with no capital. As soon as I made the website and listed the products as "Will be delivered in 45 days" at market shattering prices, everything was selling like hotcakes. By reversing the cashflow cycle, I was able to create and grow the business, and was getting money from customers before I had to pay it to the factories. My customers were getting amazing deals, and I was in a position to prove the concept I had invented. Since then, we've taken this concept to a new level and patented a technology we created called LivePrice (you can check it out here.)
The second major challenge was getting factories to want to cooperate with me. When I first approached the ones I'd chosen to work with, they declined to work with me because my orders were too small. I wanted to order a single container, whereas they typically dealt with massive brands around the world who would order 100+ containers at a time. The textbook step here would have been to try find an investor to give me lots of capital so that I could place a large initial order.
But I wasn't interested in spending time and energy convincing someone that I had a good idea worth investing in. I thought of a better plan.
For those who have dealt with Asian factories, they know that even the billion dollar operations can be very coarse in their presentation; all of their marketing and documentation poorly laid out, and often poorly written.
I always look for ways to create win/win scenarios in business. In an attempt to convince the factory to accept my small order, I redid all of their marketing materials for them. Indeed, I fixed all of their grammatical mistakes, not to mention their misuse of English, aligned all the images, standardised all the fonts, made diagrams for the user manuals, and annotated them. I sent all the work done back to the factory and told them that even though they couldn't make a profit off of my order due to its small size, I could add value in other ways.
They responded within a few hours, thanked me for everything I did, and accepted my order (they even gave me an even better price than we had previously negotiated!). This factory contacted me a few weeks later and said they had just won a massive customer in the U.S. because that customer said they were by far the most professional factory they had contacted.
Where there's a will, there's a way. If you are truly passionate about your invention, you won't let anything get in the way. You don't need to convince any venture capitalists that your idea will work – you just need to think outside the box and find ways to get the business started without huge initial funding. If you look at some of the greatest companies out there, they all started in garages with no cash.
The other problem with relying on investors is that one of their main considerations is cashflow. Every investor wants to invest in a business with minimal risk that the business will come back to them in a few months asking for more money for the next phase of growth. As such, cash is king. There's nothing more important than engineering your business to reverse the cashflow cycle. We've done this at Kogan.com and it allows us to grow infinitely without ever having the need for any external funding.
So stop trying to come up with 30 business ideas. You only need one. You need that one idea that you are passionate about, and can put your hand on your heart and say that you will do whatever it takes to make it happen. It's your baby. It's your invention. You don't need any approval from any external investor. You need approval just from one person in the world – yourself! Then, let the athlete part of Entrepreneurship kick in, and as Nike would say: JUST DO IT!
Ruslan Kogan is Founder and CEO of Kogan.com, a direct-to-consumer designer, manufacturer and retailer of the latest technology.
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