How do you get big, if you can’t raise cash because you’re too small?

In the classic Joseph Heller novel Catch-22, airman John Yossarian is faced with the ultimate dilemma. He discovers that it’s impossible to be excused from bombing duty on the grounds of insanity, as anyone who applies for exemption is clearly sane. Anyone who doesn’t apply is clearly insane. So John learns that whether he claims to be sane or insane, he’s going to get sent on his bombing missions.

There’s a similar situation in the world of business. It goes like this. If you’re a small business and want to get big, you’ll probably need to get your hands on cash. But no-one will give you cash because you’re too small. We call it Cash 22.

The problem is a huge one. Britain ranks third in the world for start ups but doesn’t even make it into the top ten with regard to those that grow into established, medium-sized businesses. Failure to raise cash is frequently mentioned as one of the fundamental hurdles to growth. Which means hundreds of thousands of businesses are failing to reach their true potential.

Is there a way out of this vicious circle of small size, low cash?

There are several things that can be done to get cash flowing. The first is to assess whether cash is the real issue facing your business. Ask yourself, what does your cash flow look like? Are there big swings? Is your business vulnerable to a downturn in cash? These can all measured. That way you’ll know exactly how big, or small, your cash flow problem is. Only by knowing the nature of the problem, can you take the necessary steps to address it. It could be the case that some, if not all, of your cash problems, can be fixed by you.

Secondly, you need to look at your own business and how it’s run. A lot of owners say “we’ve had a bad month.” What they really mean is that they’ve had a month that reflects how their business operates. A bad month didn’t just happen. It could be one of several factors, perhaps your marketing plan didn’t work, or you failed to make enough product, or the weather impacted your customers. The bad month wasn’t bad luck, it was bad planning. Perhaps your cash problem is actually the result of deeper problems within your business. Perhaps knocking on doors looking for money isn’t your real hurdle to scale up.

Creating a Business of Value

But if cash-shortage is the real problem facing you, then the first step is to make yourself investible. If the banks are giving you a hard time and won’t invest, there are plenty of other investors out there with cash, if the right business comes along. You need to turn yourself into that business. A starting point is to imagine you were an investor. Ask yourself, would you invest a sizeable sum in your business? And if not, why not? Look at all areas of your company, sales, marketing, operations, talent, and last, but not least, cash. Are there serious weaknesses within your company? How fixable are they? These need to be addressed before you go looking for money.

But, you exclaim, how can I get someone to invest cash if I haven’t got the cash to make me investable? An investor is looking for potential, not a bank balance that would make Jeff Bezos green with envy. They will want to know that your business is well run, with a clear purpose and vision, the right talent in place, a point of difference, and a robust strategy. Showing that you’ve built value in your business is key to being investable. We can help you build value.

And being small can be an advantage. You’re not a complex multinational that it would take a War and Peace size document to explain. You’re small, a tight unit. And most importantly, you still have that passion that made you leave your paid job and go it alone. That passion could play a major role in your pitch. No-one wants to get involved with someone half-hearted, worn down. But if you’ve still got that desire to succeed, that never-say-die attitude, then you’re much more likely to persuade an investor that your business would make a wise investment.

One final way to improve cash flow is to do that very un-British thing, show off. Tell potential investors precisely how good you are. If you’ve had great client feedback, don’t sit on it, shout it from the rooftops. If you’ve got a fantastic case study, showing how you made a huge difference, tell the world about it. Have you created a product that people really love, and want to tell all their friends about? Then get it on your website, and in your investment doc. Yes, investing is a numbers game, but investors are human too. They want to be part of a success story. And if you’ve had some wins, don’t bury them. Boast about them.

No-one lends money for nothing. You have to earn the right to get that sizeable sum into your account. Yes, it’s easier, and safer, to invest in a big, multinational corporation with a long track record of success. But that’s not to say that just because you’re small, you’re going to be ignored. You may think you’re in a Cash 22 situation, with more in common with airman Yossarian than the high-flyers of the business world. But there are ways and means to achieve the cash you need and the scale up you want.