This post is aimed at the entrepreneur on a tight budget who is going to have to go it alone, at least initially, without any outsiders bankrolling his or her venture. (That’s about 95% of us.)
Research conducted into the Inc 500 startups over the years and has identified a theme running through many of them. Let’s take a look at a few.
First, most successful Inc 500 entrepreneurs get their ideas while still working for someone else. There they learn about the problems that keep CEOs and business owners in their industry up at night. They then come up with a solution for the problem over time and eventually quit to launch a business around that solution.
Takeaway: It really pays to go into an industry you know well. Not only do you understand its problems and how to solve them, but you also have contacts and some degree of credibility in it.
Second, your best business model consists of you, a quiet room, a telephone, and a high gross margin (>50%) B2B product or service package selling for a motivational sum. In today’s dollars that could be around $10,000. Why this amount? Because the thought of bringing in that much cash and gross margin in a single sale should be incentivizing enough for most entrepreneurs to pick up the phone and start calling prospects. (Feel free to jack it up but just make sure that the price is justified in the eyes of customers.)
Then you start calling local businesses to set up a demonstration time.
Takeaway: All startups fall into one of two basic categories. High hustle and high capital. The high hustle ones just need the business model I described above. The high capital ones need a big injection of cash before they can move an inch. Pick the right one for your circumstances.
Third, find a way to exploit cash floats so that you can generate plenty of working capital by getting paid up front by your customers while having 30, 60, or 90 days to pay your own suppliers. There are numerous ways to incentivize B2B buyers to pay you up front. A sizable discount is one of them. Another solution is to work with a leasing company if your offerings qualify. You then send the cash-strapped buyer to the leasing company which pays you upfront and gives the buyer a year or more to pay off the purchase.
Takeaway: There’s a solution to every business problem including financing. You just have to be a realist and flexible. Entrepreneurship is like a computer game with 25 levels. If your idea of starting up consists of writing a business plan and then relying on the kindness of strangers like a modern day Blanche Dubois to fund it, you are stuck at the first level. Sorry, but it’s true. In contrast, the above described approach kicks you up to level 20.
To discover how to hit 25, go to Guerrilla Startups Guide.