I work with many different types of speaker clients through Great Black Speakers. Many are celebrities who have gained fame through their talents and being fortunate to have powerful media outlets backing their brands. Last year, I was on the phone with a speaker (we’ll call him Evan) who was regularly appearing on national television as a political commentator. Things were going excellent for him as he was on TV almost every day. GBS saw a sharp rise in his speaking request and Evan became one of our most booked speakers.
One day, Evan made a comment on the TV network that one its executives vehemently disagreed with. Compound this with some relationships uncovered from Evan’s past that they deemed “questionable” and you have commentator no longer with a position at the network. Over the course of that year, Evan saw the amount of his speaking request drop significantly as the network was his main source of primary income (commentating) and secondary income (lead generation for speaking).
I’ve seen this scenario play out many times in the past with some of GBS’ speakers and I am now adamant about telling the them the perils of relying 100% on platforms owned by others. Speakers are not the only entities with this problem. Companies of all shapes and sizes run the risk building their companies on shaky ground. To create a stable business, you need build your own platform so that you are not reliant on another company/person to ensure that your business interests are met. Some assets are more important for you to own and the “build & borrow” strategy helps you determine where you should invest your resources for the highest returns with the least amount of risk.
All companies need resources to grow a profitable business. The challenge is that we are limited in the amount of resources that we can invest at any given time. The constraint varies (financial, time, knowledge, etc.), but the problem is consistent. With enough time and capital, any of us can build profitable businesses where we own all of the resources. The problem is that we very rarely have enough time and capital. Therefore, borrowing becomes a great solution because it allows for company development to be accelerated at, often times, a lower upfront cost.
All companies need to find the proper ratio of building to borrowing best for their growth. Below are the pros and cons of each method.
I thought about my past experiences and took a survey of many of my entrepreneur friends about the pros & cons of building & borrowing. Here is what they had to say.
Stability & Control – When you build up an asset yourself, you own it. Therefore, it is harder for another entity to take it away from you or change course in regards to the function of that asset. If you build up an asset yourself, you know that it will be there for you to use over the long haul.
Cheaper Over Long Term – Although the upfront costs may be higher, building is often a less expensive option over the long term. If you are borrowing, you will have certain costs the reoccur on a consistent basis as long as you have that particular need. A good example of this is purchasing a car vs. leasing it. If you buy the car, you can use it long after you stop making payments on it. If you lease the car, you will always have a car payment because you don’t technically own the vehicle.
Find New Uses for Asset and Extend Your Business Offerings – You see this a lot in the technology space as producers of software white label their products. If you build something that is great, you can charge others rent to use your offering.
Expensive in Short Term – Most of the time, it is going to cost an entrepreneur more money in the short term to build something instead of borrowing it. This is especially true if what you are trying to build an asset that is not within your core competency. In the early stages of entrepreneurship, the item that you usually have the least amount of is money.
Slow to Market – If you are building from nothing, then it is going to take time to ramp up the resources that you need to be successful. While you are building, you leave the opportunity for a competitor to gain an early lead on you if they are borrowing a key asset.
Quick – You can usually use a borrowed asset out of the gate, which makes it easier for you to gain value immediately.
Less Expensive in Short Term – There is usually no significant up front cost to borrowing an asset, which is important if cash is tight. As I said earlier, it usually is in the beginning stages of starting a company.
Maintenance is Easier – Most assets take a certain amount of maintenance to make sure it is functioning correctly. If you have this as an internal task, it can be a big headache. If you borrow an asset, the owner is usually the one who takes care of the maintenance. The classic example is the early days of Xerox where they would lease copy machines to offices and also maintain them as a part of the contract.
Less Stability and Control – This is the biggest problem with borrowing. It makes you more reliant upon others to make sure that your business interests are met. If you are borrowing an asset from a third party, you have less control over it. If the third party doesn’t like you anymore, wants to raise the price, is changing the direction of the company, or goes out of business, you are then left with nothing.
More Expensive Over Long Term – If you are borrowing, then you can never pay the asset off. You are left with paying a certain amount of money in perpetuity.
In part 2, I will talk about they types of things that you can either build or borrow, how do you determine how you should allocate your resources between the two options, and what is the best strategy for maximizing your outcomes.