We were talking with one of our banker friends recently about start-ups. He said that people often look for money when they should ask if there’s a better way to run their business. Money isn’t always the best solution.
In fact, sometimes not having a lot of money to get started is a good thing because it forces you to be innovative and look for ways to save money. Obviously, it is possible to have too little money. Most of us have probably experienced that a time or two.
He told us about a person who wanted to start a bakery. She thought she needed a storefront. Our banker friend asked her who her customers would be. She said it would be friends and family at first. Then she expected word-of-mouth to take it from there. So he suggested that she just use her own kitchen or find a way to use a commercial kitchen part-time, instead of spending money on rent, utilities and all the other costs of maintaining a store. She didn’t need much money if she used this operating strategy.
An internet business
A friend of ours is putting together a really cool web site. They want to have an active community. They were going to pay a developer quite a bit of money to put together the forum area. We talked him into using open-source software and having it custom designed after his community starts building. He cuts his start-up costs drastically!
Our banker friend knew a chiropractor who thought he needed to rent office space so he had a place for his patients. Instead, he found a fellow chiropractor who had extra space. He rented from this chiropractor for five years. Then he secured his own location – one he knew he could afford based on the income stream he had established.
He reduced his risk and conserved money by finding a better solution to get started. Because if you build it, they may not come. Test it out first!
The average entrepreneur starts his or her business with around $25,000. Sometimes the less money you have the better, because it forces you to think creatively and spend every penny wisely. Here are two entrepreneurs who did just that …
Kelly Flatley is the co-owner of the all-natural snack food business, Bear Naked.
When her business was young, she didn’t go out and rent a large space to manufacture her product. No, she negotiated to use the commercial kitchen at a local market after they closed. She manufactured at night and made deliveries to her retail customers during the day.
Sure, she worked some crazy hours. Don’t most entrepreneurs? That’s a concession for not having money. If you’re undercapitalized, you may have to get creative and make it up with “sweat equity”.
Years ago, we heard the story of how one of our favorites, Paul Newman, started Newman’s Own – his food products company that has donated millions to charity. The details here probably aren’t fully correct, but that’s not as important as understanding what he did.
He invested a small amount of money to start his business. He contracted with one company to manufacture the product. Another company sold it to grocery stores. He outsourced almost everything. His business was bringing in millions a year in sales, yet it only had one or two employees!
He did all this with very little money, but a whole lot of creativity! You can do it too!
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Next time, we’ll discuss how something as simple as the font you choose can get people to do what you want. Until then, here’s to your bigg success!
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