Entrepreneurs, by definition, are passionate about the new product or service that they're working to bring to market. Nothing is more threatening to that passion than the realities of financing a business. And the truth is, financing is both the No. 1 thing entrepreneurs worry about and the last thing they should be worrying about. Their main focus should be growing their business and providing the best possible product. Of course, capital is a necessary evil.
In conjunction with Pepperdine University, my company just released the Pepperdine Private Capital Access Index, Fourth Quarter 2013 study, which showed that there has been a 5 percent rise in the demand for capital since last year. That's great news, because it means that more owners are optimistic about market conditions generally, and their own growth potential specifically. But entrepreneurs must remember that the keys to start-up success are still the same as they've always been: old-fashioned blood, sweat and tears … with a liberal dash of creative networking. Those who wait for the start-up ecosystem to provide them with all of the resources they need may never get a business off the ground.
Entrepreneurs should break their financing needs and opportunities into two buckets to create their own mini-ecosystem where their start-up can thrive: One involves creative personal financing, and the other taps "other people's money." It is important for entrepreneurs to focus on using their own money before looking for outside support.
That means using every bit of one's own personal resources for the new venture. It means working for free and not taking a salary until the company is profitable. It means leveraging your own capital for your business, whether taking on credit card debt, using personal savings, borrowing against a 401(k) or leveraging home equity. These methods are the simplest source of capital and show personal investment in the business—a requirement for making others comfortable enough to invest.
Creative personal financing is a little more nuanced. It involves begging, borrowing, pleading, and trading (no stealing, please); above all, it means using your passion to secure additional capital resources. Many an entrepreneur has gained buy-in from friends and associates willing to lend their time with no upfront cost. Equity can be offered in exchange for labor. Credit terms can be negotiated from vendors: Perhaps Dell will provide computers with interest-free financing or a supplier can offer extended terms on a first order. Something as simple as asking an established business owner to share contacts, or a commercial landlord to provide discounted temporary space, can make the difference between success and failure, so the importance of building or becoming part of a network of start-up-friendly individuals and businesses cannot be overstated.
(Read more:Crowdfunding 2.0: A new era for start-up finance)