It usually takes money to start a business. Not all – there are some service businesses you can do for next to nothing, like dog walking and babysitting/elder care. But for a business that can scale, meaning you’re not trading time for dollars, but rather are creating value and leveraging tools, those businesses take startup funds.
Most common advice says – use your savings. Borrow against the value of your house, life insurance, or 401k. Most people do this. It’s common for someone in mid-career to sink $60k into a coffee shop or boutique, or 2 to 5 times that to buy a franchise. That’s the advice that came from Iowa State University.
A similar approach is to let your day job fund the side hustle. My friend Lenard installed data cables into buildings to get the cash to start his consulting business. Or you could invest a couple hundred into doing a MLM business (plenty will let you start for less) and let those profits fund your life’s work.
A MLM can be profitable. Although 2/3 make little or no money, most people treat it like a hobby, not a business, and we wouldn’t expect them to make more than a few hundred a month. In reality, the 20% that work it like a business can make $2k-$10k a month working an MLM part time.
The advice from Lean Startup author Eric Reis is to sell a minimum viable product and use the profits to build the business. This does two things – it gives cash flow with minimum debt, and it validates that you have a product people will pay for before you sink too much money into the project. Copywriter Ray Edwards, who teaches how to provide a service, says to get clients first, before you do the work. Let the client fund the startup.
Since I’ve done grant writing, some people approach me to help them find grant money to start a business. There isn’t much. IF there is any, it’s targeted for specific needs, and requires matching funds. It’s more likely you could get a sub-contract with a company that has a grant or government contract, and let that push you to where you would qualify for government funding.
Companies that rely on lots of cash up front tend to burn through cash faster. By starting lean, you learn to make do, borrow and barter. These early habits stay with you into the profitability stage, and you are more likely to actually become profitable. Studies show businesses that start lean are profitable faster.
What method will you use to fund your business.