Why a Leap of Faith, Not Caution, Gets a Business Out of Neutral

Why a Leap of Faith, Not Caution, Gets a Business Out of Neutral


Opinions expressed by Entrepreneur contributors are their own.

Key Takeaways

  • A break-even business with no growth path is already “dead,” so the downside of doing nothing is larger than it looks.
  • Investors won’t fund projected unit economics they haven’t seen proven, so you may have to prove them yourself before the capital arrives.

I have been working with a business that is basically “stuck” The business is doing OK, about break-even. But it is not growing and doesn’t have a current path to correct itself. That said, it has a great business opportunity in front of it, but investors do not want to fund the business, largely because the historical unit economics are not as profitable as the future unit economics projected, and that has investors feeling that it is a leap of faith farther than they are willing to jump.

They are looking at opening a new location, which will materially propel the business to new heights, maximizing revenues, profits and unit economics while proving it can successfully open a new market. The business needs $1 million to comfortably open this location but has only $500,000 to work with today. But sometimes a business has no choice but to take a big risk  to get it “unstuck.”

The upside of doing nothing

Doing nothing is clearly the safest path in this scenario, as it will not put the company in a materially negative cash position, in terms of sources and uses of capital. Why take the risk of signing up for a project that you know will be 50% underfunded out of the gate, on the hope you will find the extra needed capital in the next few months to fill that gap; a financing that may never happen.  At least today, the business is breaking even and has enough cash in the bank to meet its needs. Don’t do it!

The downside of doing nothing

If the business does nothing, it will never get itself “unstuck.” At the end of the day, who really wants to be running a break-even business? Executives are not being fully paid, which is demoralizing them, and investors are not seeing any growth story or cash distributions, so they are not happy either. The company is simply on the “hamster wheel,” running as fast as they can but making no material progress.  That is not sustainable. Let’s do it!

The upside of taking the risk

By taking this risk, it will accomplish a lot of things for this company. It will put the business back into growth mode, which current investors will like. It will prove out the future unit economics and successfully open a new market, which future investors will like. It will materially increase the company’s profitability, enabling management to receive their full salaries. And it finally gets the business “unstuck,” taking it to the next level of growth. Let’s do it!

The downside of taking the risk

Risks wouldn’t be risks if they didn’t present downside disadvantages. If the company doesn’t secure the financing needed to cover the shortfall in the next few months, it could go out of business with no cash in the bank. And by adding this new location, the business is also taking on a long-term lease liability that will persist for years to come. And there is no guarantee that this new location will perform the way you hope, so if anything falls short of plan, it will further exacerbate this liquidity crunch. Don’t do it!

The final analysis

You can see why this situation is causing management to lose sleep. They are damned if they do, and they are damned if they don’t. Nine times out of ten, I would always go down the conservative path, and not unnecessarily put the business at risk with no cash cushion to work with.

But in this case, the business is already in jeopardy; it is not fun or economically rewarding for anyone involved, which is another way of saying it is “dead” already. Sometimes you need to take the leap of faith that everything will work out in the end. It may be painfully uncomfortable for the next year, holding your breath, wondering how you are going to make ends meet. But if you can endure the next year of ramping up the new location, the business should be in a much better position by then. That’s a position that you would never have achieved had you not taken the risk. And, in the worst-case scenario of not raising funding and the company is forced out of business, maybe that is the outcome you were heading towards anyway in your current “stuck” form. 

“Go big, or go home”, in this case, as the upside far outweighs the downside, which is not materially different than where the business was today.

Closing thoughts

As you study your own businesses, figure out if you are “stuck” or not. Are your revenues flat? Are your profits break-even or less? Are you attractive to investors in your current form? Is your staff fully compensated and happy? Are your current investors seeing a clear path to a return on their investment? Depending on your answers, you will be a good candidate to take an “uncomfortable” leap to get your business “unstuck”.

Key Takeaways

  • A break-even business with no growth path is already “dead,” so the downside of doing nothing is larger than it looks.
  • Investors won’t fund projected unit economics they haven’t seen proven, so you may have to prove them yourself before the capital arrives.

I have been working with a business that is basically “stuck” The business is doing OK, about break-even. But it is not growing and doesn’t have a current path to correct itself. That said, it has a great business opportunity in front of it, but investors do not want to fund the business, largely because the historical unit economics are not as profitable as the future unit economics projected, and that has investors feeling that it is a leap of faith farther than they are willing to jump.

They are looking at opening a new location, which will materially propel the business to new heights, maximizing revenues, profits and unit economics while proving it can successfully open a new market. The business needs $1 million to comfortably open this location but has only $500,000 to work with today. But sometimes a business has no choice but to take a big risk  to get it “unstuck.”

The upside of doing nothing

Doing nothing is clearly the safest path in this scenario, as it will not put the company in a materially negative cash position, in terms of sources and uses of capital. Why take the risk of signing up for a project that you know will be 50% underfunded out of the gate, on the hope you will find the extra needed capital in the next few months to fill that gap; a financing that may never happen.  At least today, the business is breaking even and has enough cash in the bank to meet its needs. Don’t do it!



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