“Money is there only to make things happen.” — Richard Branson
Phillip Chichoni
Money, money, money. Many entrepreneurs fail to get their exciting business ideas off the ground for lack of money.
Well, I say money should not delay or stop you from starting up. Money is just one of those problems that entrepreneurs must solve.
Traditional financial institutions will not fund a new business because of the risks involved. In most cases, new entrepreneurs will not have the collateral security or financial track record required by banks.
However, there are many ways that entrepreneurs around the world are raising money for their businesses which you can learn from.
The most important thing you need to learn is to use your brain and be creative. Money without creativity will not build a successful business. I am sure you know of many businesses that have collapsed despite getting a lot of financial support.
Below are some ways that many entrepreneurs are using to raise money, both for starting up as well as for expansion.
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Open your own wallet first. Tap into savings, home mortgage, or retirement accounts. It is risky, but do not expect others to invest in your start-up if you have not put some of your own money in. Knowledgeable investors want to see founders show confidence with cash. They favour entrepreneurs with more than “just” sweat equity in the game.
Circle of family and friends. People who know you, like you and trust you are the ones most likely to give you money to fund your business. So pitch your idea to family and friends, make them very excited and they will support you. Be careful, though, to make the deal very clear to everyone: investing in any type of business is a risk with the possibility of losing their money. It is best to put all agreements into a written contract to avoid arguments if anything goes wrong.
Start with a smaller business. An entrepreneur I know started by raising rabbits and chickens in order to raise the money required for his bigger project. It took almost a year but he successfully managed to raise the capital he needed without borrowing.
Bootstrap. Paying as you go by earning revenue from early adopters and managing every cent like it was a dollar is the most cost-effective way to stretch your company’s resources — financial and otherwise.
Nothing is scarcer than cash (except maybe sleep) when you are starting out. The more you can bootstrap in the beginning to achieve good market validation, the easier you are going to find your path to raising capital. Some entrepreneurs started their businesses operating from home, sharing offices, delivery trucks, machinery and equipment to save costs.
Crowd funding. Putting the idea for your new business up on the Internet and asking people to donate money so you can go ahead and do it is an increasingly popular way for new businesses to get funded — and there are a growing number of crowd funding portal websites where you can post your business idea and campaign for funds.
Some of the biggest crowd funding portals in the world include Kickstarter and Indiegogo. JumpStart Africa and Thundafund.com are some of the fast-growing crowd funding portals in Africa.
Supplier credit. If you manage to convince a supplier of the benefits of doing business with you, they could supply your initial stocks on credit to get you started.
Savings clubs. This a popular and fast-growing method of funding for small start-ups. A group of people come together and contribute some cash into the club, either as a lump sum or as monthly investments. Members can borrow from this pool to finance their projects. Many small-scale traders, like those at Mbare and other markets, are now masters of this form of saving and investment. Econet has recognised the potential of this system that they created an Ecocash platform for it.
Pre-selling. This involves selling and getting paid in advance for goods or services that you are still developing. Offering the early customers special discounts or other incentives will make this method more successful. It usually works well when you have built good relationships with enough people in your target market who are willing to buy the minimum quantity required to get you off the ground.
Private investors. There are some rich individuals who like to help start-ups. If you have an excellent idea and a good business plan, you can approach these people to invest in your new project. As I said earlier, your imagination is the limit. I am sure you can think of a few more ways of raising start-up or expansion funding, so don’t make lack of money your excuse.
Please feel free to email me your thoughts. Until next time, keep on accelerating your growth.
Phillip Chichoni is a business development consultant who works with SMEs and entrepreneurs. You may contact him by email, [email protected]. You can also visit http://smebusinesslink.com
