In our current internet economy, you can flesh out the viability of almost any idea for very little money.
These are the first steps. Get customers. Get revenue. Get profit.
Your best option is to sell something you don’t have. Yet.
Bill Gates did this in the movie Pirates of Silicon Valley when he sold DOS to IBM before he bought it. Watch the movie. It was brilliant.
When I started my Performance Engine Tuning business, I got my first client and check before I invested a penny in the $2500 oscilloscope I needed to troubleshoot engine sensors.
When I started business coaching, I got my first 2 clients before I had any coaching systems in place. I quickly made them from the systems I had developed at my previous business though, and 3 years later those clients are still with me.
When I launched my internet marketing business, I received my first check to build a website before I knew how to build a website (unless you count that one I built on GeoCities in 1996).
Are you seeing a pattern here?
In all of those instances, I delivered what I promised and more, even though I had nothing to provide for my clients when they first paid me.
The only way to know if you have a good idea is to find someone to pay for it.
If you absolutely need capital to make your idea work, probably the best option for “selling” your idea and finding customers is CrowdSource Funding with websites like KickStarter.com.
CrowdSourcing is brilliant because people give you money before you have a product.
- You get money
- You prove your idea has a customer base
- You retain 100% ownership and control.
- You even get some free marketing in the process.
KickStarter lends itself more to product-based businesses where you can provide an easily replicated product to your KickStarter investors.
In some instances you do need cash. Let’s say you have a complicated software product that is hard to “sell” without showing people it’s available.
Then do what ZenPayroll.com did and write some blogs, get some articles written about you, market on Google Adwords and Facebook ads to send people to a landing page where they can opt-in to your email list to be kept up-to-date on your products.
ZenPayroll started doing this before they had a product to sell. I signed up for their email list months ago and look forward to when they have a product that works in the 4 states I employ team members.
Building an email list isn’t nearly as good as getting money out of people, however having an email list with thousands of names on it before launching your product is a huge advantage.
Even authors know that you build your crowd first, through blogging and social media, before you write your book. That way when your book comes out you know it will sell and publishers will be lining up to work with you.
With the cheap 3d printers, you can build, test and sell prototype parts one at a time without expensive manufacturing contracts.
The bottom line is, there are dozens of inexpensive ways to get customers or very interested prospects before you have a product.
The Scaling Trap
Like all of my businesses that I mentioned above, do everything manually first, then once you know their are people willing to pay you, start systematizing, automating, and streamlining so that you can eventually scale.
NEVER scale your business before you have paying customers.
Here are a few other great options for your first business.
- Start in an incubator. There are hundreds if not thousands of colleges around the country with incubators. These often provide cheap rent and access to professors and other entrepreneurs who can provide you with good advice. It’s also a good way to network with other startups to find new clients.
- Buy an existing business. Five years after buying an existing business, 80% of them are still around. The reason for this is pretty simple – no one buys unprofitable small businesses. So if you’re buying a business, all you should have to do is “fix” a few things in the business to increase its profitability. If possible, buy a franchise. It’s also easier to get funding to buy an existing business with SBA 7a loans.
- Grow the business profitably. This is the route I’ve always taken and the one promoted in Rework by Jason Fried. Only grow as fast as you can maintain profitability. This forces you to bootstrap and quickly weed out inefficiencies. The fewer inefficiencies, the more profitable you become, and the easier it is to grow in an ever improving cycle of growth.
How to raise money for your startup
Debt is not inherently bad and, when well-planned, can be very useful.
One of my first businesses was a house I bought in college to rent out rooms to save on my own rent.
For that business, I had to take on debt to buy the home.
It was a great investment and the same can be true for a lot of business debt however not all sources of capital and debt are equal.
Preferred methods of obtaining capital in order of highest to lowest preference:
- CrowdSourcing – You get money, retain 100% ownership, have not debt and receive free marketing.
- Banks – They generally charge very reasonable interest rates, you still retain 100% ownership, and they don’t tell you how to run your business.
- Family and Friends – Be very careful with this as you don’t want to sacrifice valued relationships and you don’t want to invite your friends and family to “dictate” what you should do with your business. Ideally you won’t need this until your 3rd-4th business once you have a proven track record of success and you’ve made most of the dumb mistakes we all inevitably make.
- Employee Owned – Employee-owned businesses can provide a great source of cash as well as a highly-committed team.
- Venture Capitalists – Once you’ve proven to have a profitable business, have worked out most inefficiencies, and are ready to scale, this can actually be a reasonable option.
- Go Public in an IPO – You only do this when you need 10’s or hundreds of millions of dollars. The costs to meet SEC regulations alone will run well over 6 figures annually so this has to be your last resort.
Most people get hyper-focused on one or 2 common ways to grow a business. That tunnel vision comes from a lack of understanding all of your options.
Widen your gaze to put together the best growth and funding plan for your business.
To your business-funding success, Bryan
P.S. My last blog addressed some major downsides of Venture Capital however, I disdain people who point out problems without listing any solutions. Hopefully this article provided you ideas on some better alternatives.