Suddenly, starting a business has become cool. The Economist calls entrepreneurs the “Global Heroes.” There is a stimulus package aimed at small business and encouraging banks to loan money to small businesses and MBA schools are retooling their curriculum towards producing graduates who start new business rather than joining the investment banking ranks. Lot of praise for a bunch of rag-tag people, like me, who start businesses because they hate working for the man.
But the reality of the situation is that small businesses are fueled by money and not compliments. Despite multiple attempts by government to encourage small business start up loans, the reality is that it is difficult to obtain small business financing even in the best of times. Thus, small business start-ups have to learn to bootstrap their way to success. Here are 5 tips to growing a start-up business on the dime:
- Barter to control your expenses: I got my first website built by bartering. I have 5 years supply of holiday cards since someone bartered those for legal advice many years ago. Book-keeping services? Barter. People make business sound complicated but it is not. There are two sides to a business: revenue and expense. You can control the latter and not the former. So barter to reduce your expenses.
- Encourage anything to speed up payment. I deliberately gravitate towards businesses with short payment terms. Then, I regularly discount a bill in return for payment within 5 days (no payment, no discount). In other words, I focus on putting cash in the bank and do not worry as much about earnings or large profit margins- these don’t mean much if you get stretched out on payment.
- Provide services for short-term cash flow (even if you sell goods). This is a classic tech play. While you are developing your killer app in your start-up business, consult on the side to keep money coming in. Consulting has little sunk-costs, you get paid quickly and it keeps food on the table. Does it prolong moving your business to where you want to be? Of course it does but, in business, it always takes longer and costs more than you think so that’s just par for the course. Even if you sell a good, consult on the side- perhaps on how to use that good you are developing (side benefit is that you begin to sell yourself as an expert in your field).
- Be the fly on the elephant’s back- partner to increase market exposure. Have you ever been in a street garage sale? Did you notice how many more people came to your drive-way? This is the fly on the elephant effect. Find partner(s) in your industry who have larger mailing lists, more contacts, brand recognition and partner with them on something they do not have- a key technology or service or a market that they cannot get at but you can (…think about white shoe corporate America trying to sell to a ethnic communities)- and partner with them. You are exposed to markets you otherwise could not get to and give back something the elephant could not do themselves. The classic fly on the elephant’s back effect is little Microsoft providing an operating system to “Big Blue” IBM in 1981.
- Be ubiquitous but cheap in marketing to your niche. Favor free PR over paid advertising (media is dying for content daily). Newsletters and seminars are cheap ways to sell your good or service to many people at once. Have lunch with large groups of connectors. The key is to hit your niche hard and often with cheap marketing tools- people throw out brochures but remember names and faces.
Starting a business can be tough but fulfilling but you have to watch your cash. If you have no intention of being an entrepreneur but want that little extra in your pocket, consider Brip Blap’s tips on finding hidden sources of income (with a very astute observation on why focusing only on spending less rather than earning more can be self-limiting).
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