When a business consultant found no angel investor interested in funding her dream venture - $30,000 to start her small practice – she came up with a brilliant idea.
She promised her first ten clients a full refund on their fee at a follow-up consultation (six months later) provided they paid her upfront for the first visit. Temporarily at least, her problem was solved and she ended up signing quite a few clients.
The thing is that if you are new in a business and without any track record, you may find it difficult raising capital from lenders or investors. The chances of getting VC funding for such a venture are as bright as getting struck by a bolt of lightening!
An ideal place to look for capital in this case would be:
- Dipping into your own savings or borrowing against a retirement plan, life insurance policy, credit card, or the equity in your home
- A concerned friend or relative could also be of help (although they don’t always make very good investors) depending upon your personal equity
If you do decide to take this latter route, don’t forget to look at www.virginmoneyus.com and www.prosper.com. Virgin Money manages business loans between relatives and friends. Save for lending you the cash, they will manage everything else, your legal documents, transfer of payments, year-end reporting etc.
If you are a little more established, you may be able to borrow from a number of other creative sources:
- You could negotiate longer credit period from your suppliers (with a good business plan or sheer perseverance). Preferably, if your customers pay you faster than you have to pay your suppliers (even by narrow margin), then you need much lesser capital
- You could try an alternative pricing structure, say a 10-20% discount to customers who pay upfront, as the woman in our first example did
- Another modified plan could be to get them to pay a 2/3 component of the fee upfront and the balance in small, easy installments over the balance six months. The fixed component would give you at least the seed capital to get started in your practice, while the working capital pours in gradually
- You could pay your suppliers in installments
- You could ask your employees to work for stock options for part of their salary
- You may lease your company assets rather than buy them
- You could barter a portion of your service, e.g., you are good at writing/business consulting/marketing or even giving business leads! while a friend is good at graphic design. You could swap those services for each other, (not to mention pitching for common clients)
- You could choose services/products that don’t take too long to build
- You could take up short duration opportunities, such as dealing in designer gold jewelry during the festive season
- You could sell a portion of your business equity to another local business owner (perhaps in a complementary industry) for an instant cash infusion
If you are smart, you don’t need capital. Or, you need much lesser capital than otherwise. On our blog, www.p2w2.com, we discuss similar ideas for small businesses. Be smart, be a winner.
About the guest author: Chaitanya Sagar is the CEO of www.p2w2.com, an online marketplace for services like writing, business consulting, research, software, online-tutoring etc. You can find his blog at www.p2w2.com.
Great article. My strategy is to start my business part time, getting clients by word-of-mouth until I build up enough savigs to take it full time. Although this strategy takes a few years, I think it is a great way to go if you don’t want your business to start out in debt.
Great post with lots of specificity. These are good practical ideas for bootstrapping a business startup.
I think the one about choosing services/products that don’t take too long to build is crucial. “Get going, and get going fast” is a good mantra.
– Anita
@yfncg, good strategy. There are a lot of ways not to get bogged down by lack of funding. The more we can work our brain, the more we can either replace funding with another option or at least reduce it drastically.
@Anita, thanks for your comments.
Thank you for this post, Chaitanya. I am currently learning the concept of bootstrapping and apply it on my business.
I’d have to agree with Bianca here, excellent article on the concept of bootstrapping which is more or less a term that I’m not completely familiar with yet. This was a good, educational read on the topic.
Very helpful article indeed! Considering the financing our business is one of the most difficult yet very important component in business.
@Bianca, Chris and Rose, Thanks!
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[QUOTE]You could barter a portion of your service, e.g., you are good at writing/business consulting/marketing or even giving business leads! while a friend is good at graphic design. You could swap those services for each other, (not to mention pitching for common clients) [/QUOTE]
This i can very well relate to. What do think.. barter services is better than money, helps build reputation during inital phases.