Question

In: Finance

The Problem— Short Essay Format Currently, you work for an insurance company and are very unhappy....

The Problem— Short Essay Format
Currently, you work for an insurance company and are very unhappy. You boss is difficult, is not open to new ideas, and does not take responsibility when things go wrong. With each passing week, you are getting the entrepreneurial itch and stay to yourself, “I have to be my own boss.”

Outside of the office, you have been hatching a plan to start your own business. It will be an auto repair shop that is state of the art. You have always been mechanically inclined and worked on your many cars as well as family and friends since you were 16. People came to you as auto dealers seemed to overcharge significantly for routine work and often did add ons that were not really necessary in your opinion. Also, there are few independents out there who are really knowledgable. You have some casual friends who are older and far more experienced than you are in car repair who have said they would be willing to come on board if you could guarantee reasonable salaries.

As is true of most entrepreneurs, you have big dreams. Yes, you may work on cars for a year or two at start up time, but your vision is to be a manager who eventually expands the service into a regional chain. If things go really well, your fantasy is to franchise the service although you feel that personal service would suffer substantially.

You have found a good location that can be leased inexpensively due to the current weak economy. Also, people are hanging on to their cars longer so the repair market may actually pick up despite the recession as consumers will not want to sign a car loan when nervous about their employment. Your problem, as is true of most budding entrepreneurs is finding money to launch the business.

Here is where you stand:

Personal Capital to invest—$12,000
Funds from parents, grandparents, and sister—$50,000
Capital needed from other sources—$200,000

Where do you go for the money? (Angel investors, bank, family?)

You approached a bank and they said they would give you a loan at 12% if your parents co-signed the $200,000. Dad and Mom said they wanted to do it but, if your business failed, they would lose their home.

A family friend, an accountant, put you on to a local Angel investor group. They asked tough questions and said no. The major player was flattered when you called to thank him for his time and he told you everything that he thought you did wrong in the pitch. He also put you in touch with a few people whom he had worked with over the years who might be willing to back you.

You went to a new group and got shot down but more politely than the first largely because Mr. Fabulous from group #1 had told you where you went wrong. A third group was open but wanted 55% of the business. You were annoyed at first but realized that the business might fail and, unlike tech, there would likely never be a 100-1 payback that sometimes occurs there.

A few months have passed. You are discouraged and your boss at the insurance firm appears to be getting worse if that is possible.

Finally, a fourth team has given you an appointment. They are known for dragging their feet and saying “Maybe” but often keep start ups waiting six-seven months before cutting a check.

So, what do you do? Bag it and look for another 9-5 job with a reasonable boss. Look for a successful independent and see if you can buy in to the business with the $62,000 you have raised privately? Go all in on pitch #4 but try to put together a team with a senior advisor who has worked in the same business for decades?

Solutions

Expert Solution

You should never be discouraged with failures. Entrepreneurship is all about how you deal with problem. Under the given senario you can follow any of the following alternatives.

1) Look for a reasonable Boss and invest your salary in any risk free instruments till you have remaining capital for your business

2) At an inital stage you can start in a small scale from $62,000 which you have raised privately and also approach to the 4th Team at the same time. You can do some cost reduction at initial stage like Not hiring employees and doing all work yourself. Instead of purchasing new equipments, you should try to get them on hire. If business can be started with these cost reduction methods, starting your business at a small scale is a good idea and gradually with accumulated profits, you can automate your business processes. in the meanwhile, if you got the check from 4th group, you would have enough surplus cash to fill the investment gap in the business.


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