How to succeed in business without financing

Most people that start their first business think:  I need money to pay for all this stuff.

The reason being, they think about what a business looks like 3-5 years into operations.

As entrepreneurs, we have to understand that things start at a much smaller scale with what we call a Minimum Viable Product (MVP) that you can create using the means and people you have on hand, and perhaps some funds you can gather from your own house, properties, friends and family.

In fact investors will very unlikely invest in a business that hasn't gone through this phase, where you can demonstrate you are motivated enough to go through these first thin and lean steps, and succeed at generating revenues that can scale.

Besides, 90% of business that succeed were never funded initially.  They may and likely were funded later on for growth, far beyond the first revenues have been generated. 

And these funds are raised at a time when its not needed for the survival of the business... which makes investors super comfortable providing funds to your business at a low % of equity or % of interest (depending if its equity financing (Angel or Venture Capital etc....) or debt financing (banks etc...)).

We are lucky today that nowadays, if we want to build an IT business, the costs are quite small

 

We can see here that for the same company that would cost $5M to get fully underway now costs less than $5k to get the same distance.

This is mostly because of the Open Source movement and concept as well as cloud connectivity and due to a bunch of software resources, engines that really make it easy for just about anyone to get things going without hiring programmers or building complex custom software really early on.

The key is to go intelligently, step by step, getting revenues as soon as possible, and scaling from there.

One important aspect even if you do have a step by step plan, is to find an advisor that has gone through the steps to success in your business type before so he or she can guide you in which steps to go through first, second, third and give you the right timing so your energies, efforts and money is expended in a smart way.  This is also super key.

I'm of course often available as a consultant to help people out in any way I can (just contact me, and ask)!

There is a lot more to it, but in a nutshell, this is the principle to get things done without early funding.  I talk a lot more about it and give direct business examples from my own experience  and a couple other examples in the video below:

Be well, and enjoy getting things started small, and the right way!

The investor fund and digital game design dilemma

As usual, I was perusing some subjects on my LinkedIn and once more I found some people ranting on why investors don't invest in small unaccomplished firms that have a great digital game design made until the game is actually completed. 

Here is what I responded, roughly, but edited so people that didn't follow the thread can follow.

Click Here for the actual LinkedIn thread if you wish.

There are different types of investors that are willing to put money down, let's not forget that. VCs in the game space will typically fund on design only with the strongest studios with a well proven track record of generating sales. That rings true of Publishers like EA and others which act a bit like VCs. 

If you are a studio that doesn't have a multimillion dollar franchise under your belt, you need more than a design for VC money, you need at least a prototype, and in some cases, a finished product you wish to pitch to get the $$$ to publish properly etc... 

However, if your project is small enough, Angel investment can be a path for a startup, as long as you have a demo OR you have a design and a super strong team with really high class management. 

Friends and family or Kickstarter money can be used to raise small budgets on an idea with a strong team behind it. 

The business model here is simply to match the "story" you are telling to the investor with the amount that needs to be raised to match perceived risks. 

This is true in ANY business, anywhere. 

The advantage I see with Kickstarter is that if you need more than a little, and you have some strength in the team and a few moderately successful titles, you can actually raise funds without giving away equity and you have some pre-sales which is really awesome. 

Sure the bigger companies will also use the system and draw lots of attention and $$$. As a small firm, you just have to ask for less, make your first title a success, then next time you have a better "story" and experience, thus you can ask for more. 

Of course in our industry, we would love to receive $2million for our awesomely designed idea, but that'll never happen if you have never spent $2million in the business making a game yourself with the same team and making a higher ROI off of it. 

Instead of criticising reality, we must create great business "stories" and raise funds that match it, then move on. 

There are LOTS of ways to increase the appeal of a "story", but that's the subject of perhaps another blog post if people want to read up on that.

Are there specific cases for startups where they may need funds to get going?

As you all may know, my posts are always put on multiple channels for the readership to explore.  I've had an interesting comment show up for my blog post The Need for Funding for a startup right at the start so I decided to make another blog post to answer.

"You pose a very broad, general theme (Start-ups) and you try to prove it by one very specific, off-line shop. But would it work with - let's say - an online enterprise who needs some technology to interact with their target group. Curious to your answer. Thanks."  by Robert L. Eikelboom 

Yes, it is only an example that demonstrates clever thinking to reduce funding need (or eliminate it) to get ahead with your business.

However, every business is different.

In your example of the online enterprise that needs technology, let's say a community platform to communicate or do customer support to their target group, core to their business and revenues, I figure.

This is a little different since you can't grab stuff from your garage, stuff it in a van, and start doing it to build up momentum.  It requires coding, which means a capable dev on the team that is willing to do it for equity or future rev-share etc... not an easy thing to find.  Sometimes if you can't find such a person to partner with, you will need to raise funds to dev what you need.  At least that's what it seems at first.

Alternatives:
- Start your business in a way that you don't need that online tool at all, even if it means another business in a related field online to generate a bit of cashflow first with what you have (other partners and yourself expert in certain things that can be "sold").
- Partner with a development company that is interested in entering the same market you are and make a deal and share profits with them for a certain time.
There are likely more but those are things I've done with my own projects in the past.

In the first case it was because we had no budget to develop a rather complicated game, so we made web sites on contract since one of my main partner was a web designer by profession in the first place to generate cashflow, while I created other useful partnerships to line up the money for development.  Took a bit of time, but we got the game done on a significant game engine to boot.  Now its easy as pie to develop games on top of that tech and we also have a strong service wing to build or gamify web sites or sell games and game concepts to people.

On the second point we did that to expand into another type of development we had no expertise in and to avoid finding, hiring and managing the staff to do it properly, something we felt we didn't have the proper cashflow to do safely ourselves yet we had the distribution connections to pitch the sales.  So we found a company that was looking to enter the game space but that were experts at the type of software we wanted to make.  So they brought the skillset, we brought the concept and the sales channel and network, and we started doing that.

These were early days.

When you raise funds, ideally, it is to accelerate growth in your business, or for instances where you absolutely need a bit to get going (it happens sometimes there are no other alternatives).  In my experience it is rare.

Raising funds for a startup is a fast and no brainer proposition to get going, but unfortunately, you'll likely give away control of your company, and if there is lack of experience with the founders, likely the money won't be spent properly unless the funders are really involved and really knowledgable about the space your in to babysit you along in the right direction.  Sometimes the owner is experienced enough and strong enough with experience so that it just makes sense since with his "story" he can raise the funds easily and not waste anything.  Those stories are usually from people who have had businesses before and want to repeat.  Those guys, funders like and will risk more on them for more money anyway.

Hope this helps more people.

The Need for funding for a startup right at the start

Typically you want to NOT need funding at the beginning.  Sometimes it is required but its usually best to start with manageable bites for your business through an intelligent strategic plan.

For example, one of my mentored students wants to open up a niche coffee shop but she has no money for an extra rent, staff, furnishings, equipment.  Its a reasonable expense but over her budget or her current ability to raise.

Well, after talking to me and fellow Master Entrepreneur Chris Castillo we elaborated a plan where she leverages things she loves to do such as writing and marketing to draw people to the ideology of her niche cafe idea first, writing a little handbook on the subject and producing podcast-like videos on the subject in the meantime. 

These are things she loves to do and can do for free.

Through this initial process she has a blog and youtube video channel, gathering feedback and followers through her marketing talents while getting the properly tuned materials for the handbook she will write (another thing she loves to do, writing).  After the booklet is finished, she can self publish and share the book at very low cost to her followers, people she meets as well as publishers and media to draw attention to her idea and gather people's attention on her.

At that point, with some reasonable amount of work, she can likely draw funds from multiple sources having gathered a following of interested buyers she can demonstrate, publicity and other forms of leverage that makes it easier to acquire the necessary funds to buy what she needs to make the idea come true in reality.  All the better, she also has regional clients that like the idea and that are waiting for her to open her doors, making it easy for an opening launch.

So you see, there is always a way to even start businesses that require significant funds by strategically preparing through good planning.

Bottom line is you gotta think strategically, creatively and many times sideways to create success with your idea.  Most importantly if you don't have a network of helpful high class advisors, get a mentor to help you out with this.  It will be the best time (and sometimes a bit of $$$) investment you'll ever do.  Be different, be awesome!

If any of you want to have our help from Master Entrepreneur, please feel free to contact me directly and I'll let you know what we can do for you.