This week's guest post is a good follow up to last week's. You ready to be your own boss? Here's what Hannah Corbett has to say about it. For SBT's perspective and passionate rebuttal, see also "How to Start Your Business the Wright Way" and "Don't Borrow; Sell". Think those articles conflict with some of the advice put forward here? You're darn tootin' they do. Why else would I publish this piece, if not for an alternative to our usual contrarian tirades?
How are you going to get your business off the ground? -Seth-
Starting and running your own business, for many, is living the dream. For others, it is still just that: a dream. There’s a lot of idealism surrounding startup business and entrepreneurship: “dream big”, “shoot for the stars”, etc, etc, etc. But the truth is, “dreaming big” never really got anyone anywhere – good old-fashioned hard work did.
There are a million and one reasons why potential entrepreneurs ‘can’t’ breakaway from their nine-to-fives and go solo – the main one being that it’s unaffordable. While, yes, you probably will need at least some money behind you in order to start up a brand new business, there’s no reason why raising this money is unachievable.
It is possible to start a business with little initial funding – it’s not easy, but it’s possible. You have to be strict, stringent, and resourceful at all times. Don’t let this put you off, though, starting your own successful and affordable business is absolutely achievable – you just have to get into the right mind set. Take a look at some of the following advice on how you can start a business on a budget, and see for yourself.
Budget gets its own section as it’s one of the most important foundations of any successful business. Everything little bit of your business that you build will need a budget as a platform to stand on. Even elements that may end up being free – such as free advertising for example – still need to be considered by the budget before being executed.
When it comes to your business’s budget, the usual advice is to spend time on your budget, consider all possibilities, be realistic – but really, the most important thing is that you stick to it. It doesn’t matter if your budget is as little as £1,000 – you need to spend that carefully and tactically. Don’t stray either way by so much as a penny – if you can’t stick to your budgeting plans, then you’re setting yourself up for failure.
Once you’ve got the right budget in place, and you’ve pledged to follow it religiously, it’s time to move on to the question of how you raise initial funds to kick start your business. Traditional methods, such as getting a bank loan or using credit cards, can often be the most expensive in the long run, so consider some of the following options, too.
Crowdfunding – Crowdfunding is a great way to raise funds through an equity scheme, and there are a huge range of websites that you can do this through (Indiegogo, Crowdfunder, and Kickstarter just to name a few). There are a lot of benefits to crowdfunding, but it can also be risky. For example, with some sites, you have to raise 100% of your target in order to get any of the money. So, if you reached 99.99%, well, you wouldn’t get anything. It can also be massively successful, though. To use Brew Dog as an example again, they created their own equity scheme, called Equity for Punks, to fund their business. Check out this guide for more information on crowdfunding, and decide if it’s right for you.
Accelerator – This may not be the best option for everyone, but it’s an option worth considering nonetheless. A startup accelerator is an intensive programme designed to get startups off the ground, quick. If you’re well prepared and suitable dedicated, an accelerator could work for your business. Find out more about startup accelerators here.
Partners – You don’t have to go into business alone. Going into business with one other person doubles the amount of initial investment money (and doubles the amount of people seeking additional investment). Going into business with three people triples it, and so on and so forth. You might not initially be willing to share your big idea with others, but sharing the workload and responsibilities that come with having a partner could be hugely beneficial down the line.
Friends and family – This is hugely underappreciated by budding entrepreneurs, as many feel embarrassed asking family and friends for help. But, honestly, you can’t be shy. You have to be bold. Maybe your Great Aunt Nellie is a millionaire, or your best friend just got a great bonus at work – ask them if they want to invest it in your business. Worst case scenario is that they just say no, and best case is that your business gets some funding.
Bootstrapping – This is, arguably, one of the cheapest ways to start a business, as it requires no external investment whatsoever. Bootstrapping involves using the skill set you already have, and finding a market for services you could provide with those skills. It’s a great way of getting some money under your belt to invest in scaling up your current services, or use as a startup fund for another business idea.
This list is certainly not exhaustive – there are many other ways to fund a startup. If you want to do this in the most cost-effective way possible, it may mean going down unusual funding routes, or combining multiple funding options together to raise your target amount.
Product – For a small startup, you don’t need the ‘big’ idea, so much as you need the ‘niche’ idea. Shooting for the stars is not always wise; when it comes to starting a business, it’s better to take baby steps – well planned and thought out baby steps – and work your way up to bigger things over time. Having a niche product idea is a good way to go about this, as it’s likely there will be less competition in your corner of the market, and (hopefully) there will already be a defined audience and demand. It can be a much easier (and cheaper) win than jumping, head-first, into competition with the bigger companies and corporations.
Marketing – You’re really going to have to think outside of the box with your marketing, especially to keep costs down. As an example, consider the craft beer company, Brew Dog. For this small business, thinking outside of the box is an understatement – they play entirely by their own rules. Their preferred marketing techniques are brave, bold and edgy (see some examples here), which is why they make such an impact compared to other craft ale companies. In an ideal world, you would also be doing all marketing yourself to keep costs down, as paying an experienced marketing expert will be costly.
It’s all good and well starting a company with very little money, but it’s equally as imperative that you keep costs to a minimum once your business is up and running. Remember that reducing outgoing costs effectively boosts your bottom line.
Keep overheads down – This is important as it’s all too easy to find that you’re spending a lot of money on rent and bills each month. To start off with, don’t hire - learn to do the job yourself, or get an apprentice or work experience volunteer on board. You could always get a freelancer/contractor in if you have to. Also, you may not need to rent premises initially. Consider setting up in your spare room or garage first. You can move to proper premises as and when you need to. This keeps energy bills and insurance down, too.
Upfront payments – asking your customers to pay you upfront – or half upfront at the very least – means that your costs are always covered in advance, so there’s no way you can be out of pocket.
Second hand – Don’t be tempted to splash out on the latest tech or most chic furniture – it’s an unnecessary cost for something you don’t really need. Even customer facing businesses can make the most of second hand furniture and equipment without looking tacky or scruffy. You can find virtually everything you need for your business second hand, or even free on sites like Freecycle.
Once you’ve got yourself into the frugal business mind set, planned the cheapest funding for your business, as well as thought out how to keep day to day running costs to a minimum, there are a few more things that you should always keep in mind in order to keep your startup cheap.
Play it safe – There is nothing wrong with going for easy wins or guaranteed returns to begin with. When your company is bigger and more stable, then you start to take risks. But for the time being, it you do have to take risks, take calculated risks.
Perception is everything – Nobody needs to know that you run your business from your spare room, or that it was funded entirely by your Great Aunt Nellie. Even if this is true for you, there’s no reason that you can’t project your business to be bigger and better than it currently is. Make it what you want it to be, because one day, it might actually be that big, better business.
Sweat equity – Dreaming big does not a business make – working hard does. You cannot be afraid to be hands on and dedicate everything to making this startup work. You are almost guaranteed to fail if you are lazy or work-shy. You have to actively make your dreams a reality, so get stuck in.
The key to starting a business cheaply is to have a little smarts about you, and a lot of dedication. Address the foundations of your startup, your initial fundraising techniques, as well as the proposed daily operations of your business to make sure that all three embody the strict and thrifty mind-set you need to make your business work.
You don’t have to be wealthy to start a business, but you have to have adopt and live the characteristic resourcefulness, prudence and commitment of the entrepreneurial mind-set.