Regardless of market conditions, anyone can raise internal capital. Raising internal capital requires a deep look inside operations – physical, virtual, and mental.
During the recent downturn, many of the companies I advised were discouraged by the lack of capital available. As the number of VC funds declined 30% to 1,183 in 2010, companies looking for capital were left with limited options. Of course, a lack of resources always leads to resourcefulness. That is what led me to develop the three step approach to raising capital in any market.
Let’s walk through the three step process I created to assist companies with an internal capital raise.
1. Analyze Cost of Revenue
First, we look at each revenue item and compare it against all costs associated with that item of revenue. We do not simply look at cost of goods sold, but look at all resources needed to acquire revenue. Ideally, our revenue should come from referrals or viral channels. If not, determine how much it costs you to acquire each dollar of revenue. Then, ask yourself if it’s worth it. It’s okay to pay high dollar for a top tier client who will attract more revenue down the road. If you are spending resources to build your first client in a new sector, that is money well spent. We call that business development expense. And if it’s developing business it’s worth it. On the other hand, if you have a problematic user or customer who is absorbing an inordinate amount of resources, you want to address this.
Not all revenue is equal. Focus on building profitable revenue sources. Learn to say no.
2. Analyze Operating Expenses
Second, we look at expenses and ask whether you could do without it or do it for less. PR, marketing and administrative support are the easiest items to cut. There are low cost alternatives for each of the previously mentioned categories. Explore your options. You will be pleasantly surprised at the abundance of resources that are free or inexpensive.
Get frugal. The money you save decreases your need for outside capital.
3. Analyze Yourself
Last, but not least, take a thorough look at your behavior toward operating your company. Ask yourself, “What is my belief about money?” Most people have a negative mental association with money that only rears its ugly head when it’s time to step it up. In a good economy, money is flowing. There is no resistance for you to overcome. In a down economy there is resistance. You will need to hustle. You will need to cut off slow paying clients who are draining your staff and get comfortable going after new markets. Most people realize, when push comes to shove taking an aggressive approach to money is hard to do. We often view people who focus on money as greedy or obnoxious. Get over this.
Write down all the negative associations the media has been sending you since childhood. Cruella de Ville loved money more than anything. Robin Hood, an icon commonly referred to as a hero, stole from the rich and gave to the poor. This negative association sticks with us, whether we know it or it. So take a deep dive into your head. What is the story you are telling yourself about money?
Use journaling, meditation and visualization to fine tune your thinking. Remember, money is not the root of all evil. It is the love of money that creates evil. Healthy prosperity allows you to run your company and your life in a rewarding away. There is nothing evil about that.
Stop expending resources – time, money, and mind – when there is no clear return.