Myth #1 You Need More Money
Why not now? There are dozens of lies we have been told, or maybe we’ve told ourselves, about why not to start the entrepreneurship journey. I hope to clear some smoke from some of those lies and encourage you with truth in this next series.
Myth #1 You need to have more money
I’d bet this is the most common lie people tell themselves in terms of entrepreneurship— that in order to start a business, you need a large bucket of cash lying around to dump into the dream. Not only will I tell you that’s false, but I suggest to anyone starting a business to be sure NOT to start with investment from a lump sum of cash.
Yes, some industries are capital intensive. For example, a hay cutter for a hay cutting business in the farming industry costs about $300k. Or, a building for a new gym could be a serious real estate investment. However, a huge sector of enterprises do not require this type of capital upfront. And, even if your idea does, it’s wise to bring in sustainable revenue before these investments are even made.
Here’s an example. Let’s say you’re an ice skater and are tired of holes ripping in your leggings around your ankles. You do some research on formulas to create a stronger material for a higher quality legging. Well, in order for your product to be successful, you are going to need to ensure there is a market for your good— that other people have the same problem and are willing to purchase your solution.
The best way to validate this? Real customers!
One you find out the order minimum at a textile manufacturer you want to work with, a simple financial formula would show the revenue you’d need in order to purchase the leggings at COGS with shipping. Divide that total by the cost of each legging and presto! Now you know how many you need to sell.
A simple and well-structured pre-order campaign would allow you to capture these payments in advance so that you could pay for the product without putting any money down yourself. Once you’ve hit your goal, pull the trigger on the manufacture and get those leggings shipped to America!
That’s not impossible, is it? Even in capital intensive industries such as hay cutting, down payments can be collected on work booked out in advance. Once you reach enough cash to the point you feel comfortable leveraging your debt, you can purchase the equipment.
Attaining customers before making the product removes financial risk. And what happens if you don’t hit the minimum? Well, you’ll need to re-evaluate your sales campaign or rework the problems you are trying to solve to find a stronger market.
Do you know anyone who has bootstrapped a startup with limited capital? Share their story below, we’d love to celebrate with them!