By Laura Rowley
Myth 1: It takes money to make money.
It doesn’t take money to make money… it takes passion and discipline. Not having money is sometimes an advantage – it gets you focused on sales, on bringing cash into the business. There are thousands of examples of people who started multi-million-dollar businesses with little or no start-up capital – from Madam C.J. Walker, who built a fortune in hair-care products in the early 1900s to Fred Deluca, the founder of Subway, who started with $1,000. Financially, there a several avenues to help fund your start-up:
Self-funding
-Eliminate any non-essential spending (food, clothing and shelter – move home if you have to) and put your savings and current income into the business.
-Borrow against the house: Home equity loans are a little harder to get than they used to be, but the interest rates are still lower than credit cards (for people with good credit, around 7 percent).
-Credit cards: If you added up the credit limits on all your credit cards combined, how much cash could you access? Keep in mind this will hurt your credit score and you may be paying between 15 and 30 percent interest.
-Borrowing against the money in your 401(k). This may be a strategy for someone who works full time and is launching their business on the side, but there are many restrictions and risks you must keep in mind.
Loans from Family and Friends:
Although these are folks who trust you, you want to legally formalize the loan with everything from the terms to the timing. Talk about your investors’ expectations upfront, outlining the worst case scenarios: What happens if you default on the loan? Clarify that the money toward your business doesn’t the investors a vote in how you run it.
-Get a Promissory note, and set up a repayment schedule.
-Online Family Lending - Use a lending network designed for inter-family loans, such as CircleLending.com..
-Peer-to-peer Lending: Several websites now make it much easier to find an investor who will back your business. Check out prosper.com, lendingclub.com and zopa.com.
Other Loans
-SBA Loans – the U.S. Small Business Administration makes loans through local banks and agencies; you can use these loans to buy equipment, inventory, furniture, supplies and more.
-Line-of-credit loans: These short-term loans let you access a specified amount of money that’s deposited into your business checking account on an as-needed basis. You pay interest on the amount that’s loaned to you. Line-of-credit loans can be used to buy inventory and pay operating costs for working capital, among other things, but not to buy real estate or equipment.
-A Revolving Line of Credit: A lender offers a certain amount of money to a borrower; as the person repays it, they can borrow it again.
-Angel Investors: This is where to turn when you have gone through your own funds and exhausted investment possibilities with family and friends. These are high net worth investors who are willing to invest their own money in your business. I can discuss what they typically look for. Start with the Angel Capital Education Foundation at angelcapitaleducation.org, which has a listing of angel groups.
Myth #2
Myth 2: You Need Experience
Lack of experience should not stop you from staking your claim. Again, it’s about clarity, vision, discipline and commitment. And it’s about understanding where your talents lie. I would argue you can overcome for a lack of experience a few ways:
-A full-blown business plan. Taking the time to develop a business description, financial projections and a competitive market analysis will help compensate for concerns about experience. The Small Business Administation website sba.gov offers tips on how to craft your business plan.
-Hire experience: Show a potential investor that you have recruited an experienced salesperson, a skilled marketer, an accountant with startup experience, and other key managers. Also showcase your list of your outside experts and company advisors, such as an attorney, business coach or retired professionals who have experience in the business, who can supply professional guidance.
-Leverage Your Relationships: Think about who you have access to who can supply expertise and support, or become your first clients. Your network is probably much larger than you think, particularly if you use Facebook, LinkedIn, and other social networking sites.
Myth #3
Myth 3: It Takes a Long Time
Technology has changed everything: Look at low-cost technologies you can employ to run your business. In the old days you’d advertise a business; now an email blast can accomplish the same thing for nothing. You can reduce costs by outsourcing website design, graphic design, programming, bookkeeping and other services you need for your business overseas. On sites like elance.com, guru.com, professionals bid to do your job; or rentacoder.com, and concierge services like GetFriday.com or Global Solutions.com.
Build an Audience by Blogging: If you have a specific expertise, build an audience first by blogging; the people who register with your site will become the first customers for your product – whether it’s a book, seminar, piece of equipment, etc.
Strategic Partnerships: If you have a large venture that you want to get up and running quickly, consider a strategic partnership. Bill Gates invented the Windows operating system just as IBM was looking to introduce a PC that would compete with Apple. IBM invested in his product at the early stage, allowing the company to get a competitive product to market faster and in a more cost-effective way.
Research companies that need your product; that would help them achieve some sort of competitive advantage and allow them to provide a product or service that leverages off your success. Example: A specific company provides worldwide technical support for products like yours. You agree to give them a worldwide exclusive on the servicing of your product in exchange for an investment that gets you to market.
Sales and Marketing Partnership: Let’s say your product fits with the product offering of a large distributor. The distributor offering the latest hot product will reap a bundle of “tag along” sales from customers who want one-stop shopping. You offer the company a three-year exclusive sales contract (subject to meeting certain milestones) in exchange for a non-equity investment.
Buy an existing business that reflects your passion. Matt Rivers became owner of the Pump House Surf Shop in Massachusetts at age 17 – he was an ardent surfer who had worked in the shop, and bought it with money he made as a dishwasher. Now it’s one of the best known on the East Coast.