Thursday, June 2, 2011

10 Reasons Why Capital Shouldn't Make Or Break Your Startup

By John Williams

Fast Company magazine recently reported that PayPal founder Paul Thiel is giving away $100,000 to twenty-four young men and women to finance startup businesses. The caveat is that these young entrepreneurs have to drop out of college to do it.

This move is indicative of the possibility that the traditional ways of going about making a living through a college education, an entry-level position at a firm, and steady promotion through the ranks is a dead model. Instead of following a proscribed course which may lead nowhere, entrepreneurial leaders such a Thiel are sparking a change in the way we think about success.

Thiel is providing his mentees with capital to make their startups a reality. For most of us, though, the idea of investors or even securing financing may as well go the way of the corporate ladder. For those of us without angel investors, there are still plenty of reasons to move ahead with new ventures, and we are not alone:

  1. It's all you. When you don't accept capital from someone else, you aren't beholden to anyone else's input. You get to call the shots. You get to keep and reinvest every bit of what you make. You get the personal satisfaction of making something out of almost nothing. People love the fact that Microsoft was started in a garage. Dick's Sporting Goods was started with $300. Become a compelling story yourself.

  2. Having no money can help you plan. With a bank account full of someone else's money, it's hard not to feel flush with cash and have a false sense of security. An inflated sense of financial well-being can result in sloppy budgeting and accounting as you write checks here and there without pause. But when your only capital is your hard-earned seed money, every penny that goes out will be scrutinized painfully. Your mortgage and grocery bill depend on it.

  3. You can keep overhead low. You may want office space outside of your home, but you may not need it to start. Print advertising is expensive, but social media is free. Fancy websites are expensive, but blogs and Facebook pages are free. New desks and computers are expensive, but second-hand stores and Craigslist are great sources for used equipment and supplies. A box of business cards and a card table in your spare bedroom may be all you need. The rest can come later. Or not. Frugal business practices can be rewarding.

  4. A lean image is appreciated. Who hasn't dreamed of a big fancy desk, over-the-top corporate parties, and glossy ads in national magazines? But in the current business climate conspicuous displays of wealth are frowned upon and summon images of Enron, oil companies, and big banks. The shoestring budget and image are in style. Take advantage.

  5. Starting small gives you flexibility. Starting small and nimble allows you to adjust and be flexible as you gain experience instead of being tied to a large concept by heavy investment in upfront costs. If you spend $50K on a website selling party supplies but you soon realize it's the sales of catering supplies you offer that have taken off, you will want to have a site that promotes your newfound focus. But if you've spent all your money on the website for party supplies, you may not have the funds to have the site redone.

  6. Businesses can be built on sweat equity. Startup businesses requiring the least amount of capital are those that require little more than your time and hard work. A landscaping service can be started with only a used lawnmower and effort. A freelance writer needs only a computer and her time. If you will be making a product to sell, be sure the cost of materials is minimal and beyond that it costs only your labor. Making cakes, making baby clothes, or making birdhouses, for example. As your services gain demand, your time becomes more valuable and you can charge more.

  7. Moonlighting can pay the bills. Some people say if you are serious about starting a business you must go all-in from the beginning, but for some that simply isn't a reality. You can pay your bills with another job so that profits from your startup can be invested back into your business. The only trick here is that you have to be willing to work around the clock between your day job and your startup.

  8. You will (MUST) love what you are doing. Don't equate "startup entrepreneur" with "future millionaire" or visions of a buy-out by a big-time corporation. Making something from nothing doesn't happen overnight. The struggles that come with reaching your business goals will be a lot easier to live through if you love what you are doing and are committed to your idea.

  9. People can help you if you help them. A local fishing guide might make friends with folks at the bed and breakfast, each referring clients to each other. You can network to give and get referrals for other businesses. Ask satisfied customers to spread the word on yelp, tripadvisor, Angieslist, etc., and to tell their friends.

  10. Customer service is free. Out-do the big-shots and other competitors when it comes to customer service. Being polite and doing diligent work costs you nothing. It's amazing how rare it is for professionals to return phone calls and emails promptly, show up on time, or finish a project for the price quoted. Do this and you will separate yourself from the crowd.

According to the nonprofit Kauffman Index of Entrepreneurial Activity, the 2010 startup rate is the highest in fifteen years, a great deal of which are sole proprietorships by necessity. But a sole proprietor startup is not a bad thing, and it does not require the investment capital that may be keeping you from moving forward with your business idea. If lack of capital is holding you back from initiating your startup, think again to convince yourself that this excuse won't fly.

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Today’s guest post is by John Williams, president and founder of Logo Garden, a resource website for anyone starting or running a small business. John is a veteran of over two decades in the advertising industry. He has published extensively on branding, and often shares his thoughts on the Logogarden.com blog.


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5 comments:

  1. Hi Marty "Having no money can help you plan" i liked this point so much. I felt its so true having money makes you so tense and we cannot concentrate on what we do.

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  2. Are you talking literally, here? Because I've had a few ideas over my 18 months of unemployment, but that circumstance alone has ensured I have absolutely no capital of my own to invest in getting those ventures off the ground. Are you saying I should go ahead w/ these start ups, anyway?

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  3. My husband and I are building our 3rd startup in 20 years working together. We've done it both with and without outside capital. Your list is spot on. I would emphasize that MUCH can be done without capital, and your observation of frugality being hip is a helpful reminder to those sweating in the trenches. Chasing your entrepreneurial dream is a humbling process that demands you leave your ego behind. The personal sacrifices required to launch a startup are very real whether you are funded or not and success is not guaranteed so the "win" must be doing something you love. Life is too short to have it any other way.

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  4. @Dudge - I certainly am being liberal. We all have ideas from time to time, and some of us are brimming with them, however my point is that those ideas that we can make work without infusing them with cash often turn out better. It forces us to both plan ahead, a point Virtual Business Assistants appreciated, and it makes us also have a huge sense of dedication. Yes, it will make some 'ideas' not possible, but plenty of people are having ideas that when started on a small scale, grown organically and done with quality become huge successes!

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  5. Since couple of months i am trying my best to start my own business and for this purpose i am planing for it. After read your whole article i feel that this point is helpful for me "You can keep overhead low" because i don't have much capital for investment and i will try to keep in mind your points when i will start my own business.

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