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Published:September 1st, 2008 11:07 EST
Don't Do Dumb Things Out of Desperation

Don't Do Dumb Things Out of Desperation

By Joel G. Block (Mentor/Columnist)

Nothing breaks my heart more than watching entrepreneurs who are so hungry, that they make decisions which, under rational circumstances, they never would make. Those decisions frequently take those entrepreneurs right down the "bunny hole."

Joel G. BlockRecently, I was having breakfast with a gentleman who told me he was having trouble raising money. He asked if I had any suggestions. I made a series of suggestions for him, but none of those seemed to solve the immediate problem. Or, perhaps, he didn`t share the problem in accurate terms.

Two weeks later, he called and told me that he had great news. He told me that he had merged his company with a public company, and now he had a public company that he could raise money against. And he felt that investors would certainly want to invest money into a public company more than they would want to invest in a traditional, private organization. I counseled him that it was probably one of the worst decisions that he could have made. Unfortunately, he didn`t come to me earlier for advice prior to making the merger decision.

In desperation, he had done something which had risked the stability of his company and had created a series of unnecessary responsibilities. Another two weeks later, he called me back in a frantic state and began asking me how to unwind the transaction. It turned out that he had been tricked into a situation where all of his stock was now wrapped up in a company that was playing games. As I watched the stock price of this company, it tumbled by 80% in just 30 days.

I ended up giving the gentleman a referral to one of my friends who is a securities attorney, so that they could, hopefully, begin to unwind the transaction. The unfortunate part of it was that his cash was so low, that he couldn`t afford to retain the attorney. I asked the attorney for a favor, and got them to work together to try and save the company from the abyss.

I see this unfortunate situation every day. In another situation, a gentleman, again, desperate for business capital, accepted an offer from an offshore firm who promised him the moon. The offshore company told this entrepreneur that they would provide them with a tremendous amount of capital in exchange for very little of his company. But the truth is, when I looked at the deal, I understood immediately that, although they were taking very little of his company, there were trap doors that were set all over the arrangement. If the entrepreneur failed to meet any number in any of the projections that had been prepared, then the investing company would spring into action and take nearly all of it away.

It`s not very much different from how credit card companies offer 0% or low percent, but take all those benefits away the minute that you`re a day late on your payment. This situation occurs for entrepreneurs, too. The gentleman in this situation, naturally, missed one of his numbers early on, lost control of his company, lost his position as the CEO and now is scratching just to stay on board.

I could only tell entrepreneurs that they need to reach out to competent assistance and not be penny wise and pound foolish. Paying a few dollars for some advisory assistance and getting help is among the most important things that you can do for the long-term health of your business. If the business has great prospects, make sure that you treat it with great respect.

In April 2008, I wrote another blog entry on a related topic. See:

It`s also common for entrepreneurs to go into the most critical meetings of their lives unarmed and unaccompanied by professionals. Entrepreneurs, when they`re going into environments that are new to them, should always take a "big elephant" because companies will not tend to take advantage of people who appear to be experienced and financially secure. But, entrepreneurs often go into situations where they appear desperate or they appear too needy. Human instinct takes over and the trouble begins. Take your attorney. Take somebody like me with you when you go into a critical meeting. Don`t let your desperation drive you to do dumb things. It`s really critical that you get yourself on the right track.

So, as you are working hard every day to build your company, or as you`re building your career, refrain from allowing your desperation cloud your judgment. If you can`t arrange a few dollars to get some help from competent council or competent advisory professionals, then you need to question your ability to be in business and to run your company. Reach out. There`s nothing to be embarrassed about when you have to ask for help.

About Joel G. Block, President of Growth-Logic, Inc.
Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker and advisor.

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