13 WAYS TO FUND YOUR BUSINESS
Starting a new business, often means that revenues are insufficient to cover for startup costs. Specifically those startups who aim to deliver a disruptive technology or business model are facing significant development expenses. The disruptiveness of their solution means that the start of sizeable revenues are often pushed out to a moment in the future, due to the time it takes to win customers for the disruptive way of working. Consequently, startups need funding to cover the cash gap. Hereunder, we present 13 ways to fund your business.
1. Do Not Spend
The easiest way to fund your business is by not spending money. There is nothing wrong with being thrifty and frugal. On the contrary: the best entrepreneurs are often people who find it very difficult to spend money, because they know that each penny spent, is a penny they’ve earned with blood, sweat and tears. And if you’re starting a business, chances are that you’ve devoted a lot of blood, sweat and tears without having earned a penny yet. In case you needed it, the hard work of starting a new venture is a great way to help you develop an appropriate respect for cash (Something that will also help you appreciate the other party’s motives not to invest in your company, in each of the 12 follwowing ways to fund your company). So keep your money in your pocket and ask yourself questions like: Which expenses are absolutely required? (The sine qua non items). Do I need a new computer, or will a used-one do? Do I need to rent an office or can my startup be virtual? Do I hire people, or should I subscontract? How can I keep expenses variable, so they grow (and decline) with my revenues, rather than being fixed? (This is very relevant, because most startups have extremely fluctuating revenues in the early days).
The key to funding is to start with not spending. This is your first test of wisdom, since you’ll need to address an issue of existentialism: what is absolutely required to get my business going? That’s where you have to put your money. For all other matters, remember that money you’re not spending is money you don’t need to find funding for.
2. Sweat Equity
Funding method # 1 may be summarized as “do not spend”. Yet, in many cases you need certain skills to complement your own, in order to develop a minimum viable product. So you’re likely to hire people, resulting in salaries, which are typically the largest cash-out item for a startup. One way to save money is to hire people, yet pay them below market salaries. This is often feasible, when you’re adding sweat equity to the deal. The best people for your start-up are co-entrepreneurs who will join you for the ride, not for the pay check. [More to follow soon]
By now you’ve concluded that although you save money where you can, there is a cash-gap and you’ll need a way to fund that gap. By far the best way to fund is to borrow money from third parties. We’ll present some tips and tricks to help you get deeper into debt. [More to follow soon]
It’s as addictive as methamphetamine (and almost as easy to get) and it may be just as destructive. It’s called government grants. [More to follow soon]
5. Friends & Family
[More to follow soon]
6. Informal Investors
Informal investors are quite different from formal investors (like VCs, to which we will turn in Funding Method # 7). Informal investors may support your startup with loans, equity or other contributions like equipment and facilities. [More to follow soon]
7. Venture Capital
Equity, then loans. [More to follow soon]
A great way to reduce the need for cash is to transfer the responsibility for a chunk of your working capital to a supplier or a partner. [More to follow soon]
9. Launching Customer(s)
People will pay for pain killer, when in pain. [More to follow soon]
10. Front Loading
Pay Now, Deliver Later. [More to follow soon]
11. Collect the Bounty
Twitter is profitable. Why? They collect bounties. [More to follow soon]
12. Leverage Relative Strength
If cash from Products is insufficient, how about extracting cash out of other skills or assets, IP or even reputation. [More to follow soon]
Last, and least (and therefore 13th): close down and start over again. [More to follow soon]
Want to know more? Read "Time To Cash – The Seven Keys to Successful Startups” (available for Kindle via Amazon.com or here as paperback or e-book.
Contact Hans van der Hoek per email: firstname.lastname@example.org .