#TBT - When and How To Raise Money w/ Jeff Hoffman

When I ask business owners now, I say, what are the sources of funding for your business? They tell me bank debt, you know, and different kind of loans, convertible loans. They say private equity, they say venture capital. You know what not one business owner ever writes on the list? Customers, why don't you sell something to fund your business?

Hey capitalists. In traditional throwback Thursday fashion, we we're re releasing one of our most popular episodes that we've had on capitalism dot com. Enjoy.

This is Ryan Daniel Moran and today you are in for a treat at Freedom fast lane live 2015. Far and away the most popular speaker was billionaire Jeff Hoffman. We used to call it Freedom Fast Lane Live. Now we call it the Capitalism Conference because it has pivoted to being a global summit for entrepreneurial empire builders. Jeff has a resume that is lengthy and really humbling and impressive. But the most notable among them is that he was one of the original co founders of priceline.com he exited that company and then has a whole bunch of other awards and accolades next to his name. I've had the privilege of getting to know Jeff over the last year and his talk was so popular and so well received that I wanted to share the Q and A with you here on the podcast. So this isn't his full talk, but his Q and A was immensely valuable.

Now enjoy this clip.

I wanna talk about funding quickly because I think when you become unattached from the cash flows, of it being my business, of it being my thing, of the money that's in the business account is my money, all of a sudden you can work on your business rather than working in your business. And I think that's an important transition for entrepreneurs when they start building teams is to disassociate from that connection. But it's hard because so many entrepreneurs who are at that million dollar point or so are still so attached to it. So building a world class team is, is difficult for them because they don't see the, the funding or the cash flows for it. How have you approached that? Have you generated the cash in the business? Have you always raised funds?

What has been your process question? So when I ask business owners now, I say what are the sources of funding for your business? They tell me bank debt, you know, and different kind of loans, convertible loans. They say private equity, they say venture capital. They, you know what not one business owner ever writes on the list, Customers, why don't you sell something to fund your business? Because Silicon Valley, I'll blame them, has created this, you need to go get funding Now. And the truth is, you don't need to go get funding until you can. Here's a tip. Here's what I would always do. I would go and make a list on the wall of everything I can think of that I need to do between now and someday to make my company successful. List everything that has to happen between now and the day your company achieves your definition of success. Then I go back with a marker, and I circle everyone on there that I think I could do without someone else's money, without money. And then I go do all those things. You should never seek funding, but until you absolutely need it for something because it deters your focus. You said it earlier today, there's a lot of people that wouldn't know what to do with the funding. So one day I was showing a business. I said, customers are a source of funding. And they said, jeff, the product's not done. So the first thing is, can you sell something right? So I said, let me take a stab at this. So the product wasn't done. So I got in my own car and I drove around to customers. They were businesses for this product. And I said, look, the product's not for sale yet. And they said, then come back when it's ready. We're interested. And I said, well, about that. And I said, now, this is a little bravado, but I said, there'll probably be a huge waiting list for our product when it comes out. I. I have no basis for saying that. And I said, so you can take your chances and I'll go home, or you can write me a deposit check and I'll put you on the top of the list. I came back with a pile of money and funded my company from deposits for a product we hadn't even built yet because everybody wanted to get it when it was finished. So creative ways to finance your company through customers should be your first attempt. Borrowing money from somebody else should be after you've done everything you can think of. Not early on.

So many entrepreneurs get addicted to this idea of when they make more money. It's their money so they increase their lifestyle, and they never really get free of their business, which, when we increase revenues and we recognize that it's the business's money, you can work on it and build something truly spectacular.

Absolutely. I always, literally would divide things into two piles. This chunk will be my money for the value that I created. But this is money that I'm reinvesting, so I don't watch those nickels every day. I kiss it all Goodbye. On day one, I'm putting this money, it's now the company's money, it's gone. I've said goodbye. If it comes back, and in some cases it comes back many times over, that's great. But you are right. If you continue to treat it every day as your money, what you should focus on was what normal controls and disciplines would you implement for anybody's money? You should focus on the controls in the business and. And are you spending money on something that's actually selling more flowers? So I functioned on the process, making sure I had great process in place to protect the money, but not really the money itself. I mentally. Entrepreneurs. You know, there's that. I saw that poster one day that said being an entrepreneur is like jumping off a cliff and trying to build an airplane on the way down, Right? If you don't. If you don't have that DNA where you jump off cliffs all the time, you shouldn't be putting your money in it. Anyway.

So I want to ask you about failures. Has there ever been one and how did you handle it?

Yeah, we've had a couple. And by the way, that's one of the harder things with entrepreneurs and business owners is failing. And we all know why. It's pride and ego. So I actually called this the Thanksgiving test. And I'll tell you why. I was going to visit two people that I mentor, two business owners, entrepreneurs. And I went to the one guy and I said, hey, next week's Thanksgiving, are you excited about going home? And he said, I don't want to go home. And I said, just a guess. We haven't started talking about business, but you borrowed money from everybody, you know, and they're all going to be there at Thanksgiving, aren't they? And he said, how did you know that? And I said, just a guess. And the business is sucking and you don't want to tell them. And he said, right. I met with the girl in the afternoon. I said, next week's Thanksgiving. And she said, oh, my God, I can't wait to get home. And I said, because you borrowed money from everybody in the business. She's like, how did you know that? I said, just a guess. Right? The Thanksgiving test is pride and ego. He didn't want to tell people he was failing because he wanted to save face. There's something way worse than failing. It's deciding three years later that you should have quit at Thanksgiving. Okay, so entrepreneurs have the ego. So one of the things that we do, we definitely had failures. Here's what I. You Asked, what did I do? I learned from it. And here's what I learned. What we do at the beginning of each venture in the beginning of each year is we make a list on a board of what success looks like at the end. Next Thanksgiving, if our company looks like this, we were successful. If it looks like this, we were a failure. The then we get all the stakeholders to sign it. Every aunt and uncle that gave you money, every employee, sometimes spouses want in, everybody signs this thing and says, this is what we agree success is. This is what we agree failure is. My employee said, what are we doing? I said, you're pre firing yourself. If we get to the end of the year, and this is true, I should not have to come down the hall. Everybody should be loading plants into their cars and driving away because we know we failed. The problem is people don't define success and failure. They get to the end of the year. I ask you and your investor, how was this year? You say, great. He says, horrible. I see you guys did the same company and you say, I can't believe how much we got done. And he says, I can't believe how much you didn't. It's defining it and signing it. Success and failure at the beginning. So when failure comes, what we've been always quick to do is let it go. When everything in the world pointed to fail, we finally said, guys, we don't need to spend three more years of failing. You can already see all the signs.

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