Skin in the Game

College basketball season is here and for some reason when teams have similar colors it makes me think back to my junior high days when the boy’s basketball team would scrimmage and teams would be divided up into ‘shirts’ and ‘skins’.  The more I learn about bootstrap financing, the more I’ve heard about  ‘skin in the game’.  This expression is now a business term attributed to the well known investor Warren Buffett referring to a situation in which high-ranking insiders use their own money to buy stock in the company they are running.

If you have started your own business, chances are that you contributed a significant amount of your own ‘skin’ or money into starting your business.  If an owner doesn’t have something invested, there really isn’t much risk at failing.  Bootstrap financing is another buzzword referring to the same concept – as the owner or entreprenuer you need to tap into other resources such as personal savings, family and friends for start-up capital.  The average entrepreneur invests $30,000 of his or her personal funds.  If you’ve tried to get a loan recently, you are well aware that lending regulations have tightened up!

In Washington State, there are some small business loan programs, microloan programs and grants available for start-ups, but these still require an investment  on the part of the business owner.  Also, you will most likely also need a business plan, financial statements and financial projections for any grant or loan application.  There are extremely limited grants available for the average business venture and unless you have some revolutionary product or are working on a high-tech or technology product, grants are even fewer and farther between.

What is your best advice for someone looking for start-up?  Save what you need? Perfect your pitch to try and access venture capital?  Borrow from mom & dad? Max out credit cards?  We’d love to hear what has worked for you and/or important lessons learned.