No BS Grassroots Marketing Inconvenient Truth 2 - Don't Promote Your Yellow P...
Secrets to Funding a New Business Without Venture Capital
1. There is a myth that if you are going to start a company,
you need to get outside funding. It is completely not true
and it is harmful to a would be entrepreneur to think that
way. There are many ways to get the funds necessary to
start and operate a business that don't involve giving
ownership of any of your company to outsiders. Of course
it depends on what kind of business you are looking to
start, but if you want to start your own business and don't
want to have to get investors it you can get it done. There
are three ways to make it possible: Keep expenses down,
bring in significant revenue quickly, and use other people's
money.
3. The biggest expense of any business is payroll. Don't hire
people until you absolutely have to! In fact, don't put
yourself on payroll until necessary. Business owners
should only get paid well after the business is profitable
and self-sustaining. The best way to start your business is
on the side of your existing job. I am not saying that you
should take time away from your current employer, but
there is a lot of time available during
nights, weekends, and vacations to get the business going
in the right direction.
4. If you are going to have a business partner or two, then
they should be able to stay off the payroll as well. Because
it is necessary to have sales, technical, and financial skills
in the company, and a group of three people is more
stable than a partnership, I recommend having two
business partners. Get them to work the business on the
side as well. When it makes sense, have one of the
partners start working full time, then add the others when
you can afford to.
5. Keep expenses low in other ways by not getting an
office, sharing living quarters, and otherwise being frugal.
The less cash you burn every month, the longer period of
time you will have to get the company going. It can be
tempting to rationalize that you need an office, or nice
furniture, or have to buy new computers, but don't.
Instead scrimp, save, and meanwhile work your butt off to
get some revenue in the door and service your customers
above and beyond their expectations. It will pay off down
the line.
6. Even though it is tempting to offer equity to people that
you hire, I advise against it in just about all cases.
Instead, try to find the underlying reason they are asking
for it. Some people think it will let them have a say in how
the company is run, and you can explain to them that they
have a much bigger impact by doing their job well and
taking on more responsibility. Others think they will get a
big payout if the company gets sold, and you can explain
to them that if they are looking for a big payout, you can
structure a bonus or commission plan that would get them
a big payout sooner. The only time you may want to
consider offering equity to an employee is if they are a
proven rainmaker and they can bring your company a lot
of business quickly, and you can't afford to hire them in
any other way.
8. A functioning business has to have cash, and the only self-
sustaining way to get it is to have customers buy from you.
Every owner has to be a salesperson, and the owners need
to be annoyingly persistent in turning up revenue from
everyone they meet. But don't alienate your friends by
trying to sell to them, since you will either run out of
friends or prospects quickly. Instead figure out the best
market that needs your product, and go after it with a
vengeance.
9. Startup companies are very hard to compete against when
they are in initial growth mode. Their expenses are
low, and they are looking to gain customers any way
possible, so in many cases they are able to offer better
service at a lower price than established businesses. While
you are a startup company, take advantage of this by
explaining to your customers they will get a good deal
because you are looking for reference customers, and you
do not have the same management and infrastructure
overhead your competitors do. But charge a fair price and
as much as you can get away with so you can be as
profitable as possible, because you need those profits to
grow.
11. Besides revenue from sales, there are two ways to get
money - equity and debt. If at all possible, stay away from
equity funding, because it is bad for you. Even though
there are many tales of startup companies making the
rounds of friends and family, angel investors, and venture
capitalists, I tell you from experience to stay away from all
of them if you can.
12. Unless you are already running a profitable business and
you can dictate the investment terms, each one of those
sources of funding are going to want an unreasonably
large ownership percentage of your business. The best
way to get an initial quantity of cash to put in the bank is
to have the owners who are working in the business pony
up a cash stake, and do not take money from anyone who
is not going to put their fortune at risk and be part of the
crew working 20 hours days to make the company a
success.
13. Debt can be used intelligently to help the business grow
quickly. First off, understand that as a new business, you
are going to get zero credit without signing a personal
guarantee. Second, since you have no business
history, your business will get maybe a few thousand
dollars in credit. So the only way you are going to be able
to get your hands on enough borrowing capacity to be
useful is with your personal credit. A proven way that
works is to take out as many credit cards as possible while
you still have a job at your employer - you will still have
that credit available when you start working full time for
your startup.
14. But don't use debt to fund continuing operations like
payroll, rent, or other things you can't afford to fund out
of cash from operations. Debt should be used to buy
products that you resell to customers. Don't even buy
inventory with debt! And only buy products after you have
a purchase order from a customers. Furthermore, any
terms you present to customers should have them paying
for at least half the equipment and services up front, and
for all of the product once it is delivered to them at their
location. In this way the amount of debt taken on is equal
to or less than accounts receivable, which means the
company essentially remains debt free.
15. If your industry supports it, buy your products from a
stocking distributor. Even though there may be multiple
distributors, develop a good relationship with one that will
help you out. Distributors can offer much more than
products and a line of credit - they can offer advice on
what markets to go after, what products are up and
comers, and what areas to stay away from. Vendors and
distributors want to see your company succeed, and if
they can help you get bigger faster, it is a good thing for
them. If you get a big order, and don't know how to swing
the credit needed to purchase product, distributors have
many creative ways to help you get that done because
they want to see you succeed.
16. Establish a relationship with a local bank branch that is
small business friendly. Make a point of finding out who
the small business account specialist is and getting to
know them. Share your plans with them, and start a small
line of credit with them, even if it has to be secured by
your deposits. Over time that relationship will grow and
blossom, and if you need something, you will already have
built a base of trust and a track record of reliability, so
they will be willing to listen to you and maybe even help
you.
18. Just because you own a business, it does not make you
special. Many people assume business owners have
money, but don't realize that in the first few years of a
business all profits are plowed right back into the business
to help it to grow to a survivable level. Make sure you are
growing the top line revenue while minimizing expenses
so you can keep that reinvestment going. Always add to
your debt capacity whenever you can, and remember that
you distributors, vendors, and banks want you to succeed,
so they will help you out if you share your plans with them
and get them to buy into your vision. And don't give out
your hard earned equity to anyone!