Business is a money game with few rules and a lot of risk.
Bill Gates couldn’t have been more correct when he said this. This point about business has been true in every era. Though technology has changed a lot of things in the way business is done today and the types of businesses that are built, this one thing is still true. It is kind of a chicken or egg scenario – your business can make heaps of money if it becomes successful, but in order to be successful it also requires money in the beginning.
Serial entrepreneurs who’ve had a successful career in past usually don’t encounter too much problem in building a business (Not financial problems at least). In most cases they can utilize their own financial resources to finance their businesses. If they still fall short of required capital amount, they can tap into their social resources to arrange venture capital for their business.
However, if you’re a first time entrepreneur and do not belong to a rich family, you may find yourself in a tough spot. Don’t be too hopeful towards VC firms, especially if you’re starting up in a bad funding climate. VCs prefer investing in entrepreneurs with a solid history of building successful companies, or in entrepreneurs who’re alumni of prestigious institutes. And while you can find them funding some companies whose founders don’t fall in either of these categories, such cases are very rare actually. Besides that, even if you gain VC financing, you may find it tough to deal with professional investors as a first time entrepreneur. There have been countless conspiracy theories and controversies revolving around the control that VCs exercise on companies in which they invest.
So as a first time entrepreneur your best bet will be to try some other ways of financing your business. And whatever you do will actually fall under either of these three categories:
- Curbing expenses
- Finding money
Let’s learn about each of these in a bit more detail.
When you’ve limited resources, the first logical step you can take is curbing unnecessary expenses. Get laser focused on which expenses are really important and which ones are not. The server cost of hosting your website is necessary, but a fancy logo designed by a professional design studio in California or an ad campaign in all major publications are not. So prioritize all your expenses in a list to figure out ‘minimum capital requirement’ to operate your business for first 3 – 6 months. That is the minimum amount of money you need to get started.
Now if you can arrange that amount yourself, all good. Otherwise get ready to move on to next category of steps.
If you can’t arrange the required minimum amount yourself, you need to find it from other sources. Risk-free sources are usually better than risky ones (i.e. debt from financial institutions, private lenders), so I’ll describe some of them in this section.
- Friends and family: While you may cringe at this thought, the fact is that friends and family members are probably one of the safest lenders you can have for your business. Unlike institutional lenders at least they won’t throw you out of your house if something goes wrong. Plus, they will not dilute your ownership in the company to give you their money. So if you can raise some amount from your family members or friends, you should do it.
- Get a job: Alternatively, you can do some other job for some period to finance your business. Of course, it won’t be easy to do your job in the day and work on your startup in the night, but who has said that entrepreneurship is easy? If you decide to move on this path, I’d like to tell you that this is arguably the best type of financing you can have. By doing this you can eventually invest a lot of money in your business, without diluting any interest and without taking debt from anyone. But yeah, you should consider taking help of some assistants or freelancers to pull this off. It’s very risky to pursue this approach yourself.
- Other entrepreneurs: Paying forward is a tradition in entrepreneurial economy, so there’s a good chance that if you’re passionate about your business and you’re building it around a real problem then you can find some backers in fellow entrepreneurs. Not only they can finance your business but also they can provide you advice on various topics related to entrepreneurship. If you choose this path, you get the financing you need plus some connections in entrepreneurial community, which will be very beneficial in the long run. You may have to dilute some of your equity though.
This is another creative way of arranging whatever you need to start your business. If you can arrange some required services or supplies for your business by bartering, do that. If you’re good at something, you can offer your own services for a short period in return of what you want. For example, if you are a designer and you need copywriting help then you can offer a new logo design to any copywriter in return of some decent ad copies. Or you can offer something from the business that you’re building (i.e. free membership, product or anything). There’s a good chance that many people you talk to for bartering may actually turn your offer down (unless you make an irresistible offer), but eventually you’ll find someone who’ll be interested in this exchange. Just keep in mind that it’s also a sales funnel and only a fraction of people who listen about your offer are likely to convert.
Building a business without any funds at all is extremely difficult, but at the same time it’s not the thing that can stop your ideas from flying. You just need a bit of creative thinking, laser focus and determination to keep pushing forward. And of course, a good product or service aimed at solving some meaningful problem. If you’ve all these things in place, lack of funds can’t stop you from building a successful business. All the best!