Bootstrapping - Making You Think in Business

Posted by Sara

May 10, 2008

One statement I hear a lot from people is, “I wish I had the money to start a business’.

In most cases it does take some money to start a business. Most people seem to think you need thousands or hundreds of thousands of dollars to create a business, but that is a very false idea. There have been a lot of people start a very successful business on nothing more than $100.00.

Having a lot of money to start a business isn’t always the best way to begin in some cases. Everytime I have been asked in the past about finding money to start a business I first ask them is, “Why do you need a lot of money?” The answer I normally get is a long list of new equipment, lots of employees, a new office, new building, lots of custom made decor, and other stuff they really don’t need in the beginning.

The reply I usually give back is the true story about a guy I know who borrowed $250,000.00 to start a play place for kids with a ball pit, video games, parties, food, tunnels, and more. He started it as a sole proprietor business since it took his own credit to borrow that much money from the bank. He was bankrupt 6 months later.

His mistake? He had the money to start the business but he didn’t have the experience. The business had failed before it even opened. What happened? The answer is simple, he spent too much money on things he didn’t need in the beginning.

He didn’t need,

$5000 in custom built software with the business logo just for his employees to log parties and accept payments
Custom built high chairs for the little ones, when off the shelf commerical high chairs were much cheaper
An overpaid manager (who didn’t really like kids) to run the business so he didn’t have to be there
35 employees when the business only needed 20 to be completely staffed

What he should have spent money on instead was,

Better food at the snack bar instead of ordering frozen pizza and other pre-made food to reheat for customers.
Advertising instead of relying on word of mouth and friends
Research and education in how to run a business of this type
And most important, only spend money on what you really need to keep the customers coming back

If he had only borrowed $75,000 to open the business he would probably still be in busy today. The lack of money would have forced him to think. Not having all the money he needed he would have taken a much closer look at employee requirements, custom equipment, and would have thought more about what the customer will want and how to keep them coming back.

Starting from scratch and without a lot of money is an important lesson and education some business owners miss out on when they borrow money. If you have the money to keep the business going for a long time without sales then you don’t worry about learning to make sales, finding out what are the needs of the customer, and what will keep them coming back. When you finally get to that point months down the road your business is already past failure because your customers already don’t have a great opinion of the business and you will have to work extra hard to get them in the door and coming back.

Before you lose your house, life savings, marriage, and all your friends and family take a hard look at the business you want to start and see how much you really need to get it going. You might find you don’t need a loan, you just need to start thinking like a business owner.

Business Talk