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Photo Credit to: We Love Costa Rica

In my work as a business coach, I talk with a lot of ambitious, driven business owners and entrepreneurs. One of the conversations I frequently have comes when I talk people with high-growth startups and small businesses looking to scale. It goes something like this:

“Hey Tom, we need capital to grow my business,” they say.

“Really?” I reply. “What kind of capital?”

“What do you mean?” they ask, confused. “We need money.”

Financial capital — money — is important to every business, but it’s not always the most pressing or biggest need. Knowledge capital, relationship capital, and human capital can all be extraordinarily valuable when it comes to long-term success. When a business is ignoring these other kinds of capital, and focusing solely on raising money, it can be a warning sign that there’s a deeper problem.

“OK,” I say. “Let’s say I can help you raise some financial capital. What are you going to do with the money?”

“We’re going to hire a bunch of salespeople because we need to scale our business,” they say.

At this point in the conversation, it’s time for a reality check.

“That sounds like a good plan,” I say … then I drop the hammer. “Do you already have a sales foundation in place?”

I pepper them with questions. Having worked in private equity, I know the exact kinds of concerns an investor will need answered before even considering breaking out the checkbook. I ask probing, prodding questions about just how reliable, predictable and organized their current sales system and methodologies are. In almost every case, it quickly becomes clear that their current sales foundation is anything but solid.

When I point out this lack of sales infrastructure, I tend to get the same response.

“That’s why we need money to hire salespeople,” they say. “Don’t worry. We’ll hire a new head of sales to figure all that out. We just need some money to make the hire.”

This may seem like a reasonable plan, but it’s actually a huge headache in the making. You can’t grow your sales by simply throwing money around. Sales is a process, and it needs a intentional, planned structure to function properly. This means having a reliable, scalable method for finding opportunities, vetting them, and turning those prospects into paying customers. Simply getting a check from an investor doesn’t change anything.

Outside investment can actually be more of a distraction than a benefit, particularly when it comes before a business is ready to make the most of it. Worse, the time spent trying to find that outside investment could be better spent building up the company’s sales foundation. With a stronger sales system in place, it’s easier to both predict and grow your future revenue. When viewed from that lens, it becomes obvious that raising outside money isn’t really the core need. The core need is more revenue.

If the primary reason for seeking outside investment is to find capital to finance investments in revenue growth, why not skip the middleman and simply focus on building your core competency in sales? Not only will the need for external capital become dramatically reduced, you may realize that you don’t yet need any outside investment at all.