NO. 2 REASON STARTUPS FAIL: THEY RUN OUT OF CASH (Part 2)

Running out of cash to start that business idea isn’t pleasant at all. What can you do then? I know three proven methods that may help: modify plan, go get the needed cash, or get what you want without paying.

MODIFY PLAN
This implies where the desirable is not available, make use of the available. In other words, improvise. I’m not saying you go substandard or anything of such. For example, your intended business is starting a primary school. Initially you needed to start with seven B.Sc. holders, but the cost of hiring is higher than what you were able to raise. But the work can be done efficiently by OND holder for a lesser wage and within available funds, then, change of plan could save you the hassle. Did you want to start laundry business with automatic washing machine but the cost outweighs available funds. Should the available fund cover for one which does the work but you have to manually do some things, why not? Change the plan and go for it.

GO GET THE MONEY

While starting a business require money for things to do, where it becomes absolutely impossible to modify, go get the money. The good thing is it doesn’t have to be your money. In fact most successful businesses grow on OPM (Other People’s Money). There are several ways to go about this. Common knowledge is to obtain loan, especially from bank or other financial institutions. But in most cases, this is not a very good idea because business takes time to stabilize enough to yield the money you borrowed, and then the exorbitant interest. It also deprives you and put you under undue stress of meeting up with the deadline. Running business is stressful already, don’t let loan add to it.

There are several other ways to raise cash. Even to obtain a loan could prove mission impossible as you may not have the requisite collateral. What then can you do? Common knowledge talks about turning to personal savings, borrowing from family and friends and in fact obtaining loan. But what of if all these are in sufficient? Try the following

Turn to Investors:
 investors have the money and know their money lose value staying in the bank. So they are on a look out for profitable ventures they could turn in their money and reap future returns. Pitch your idea to a prospective investor. (More details to be covered in a later post – watch out for it)

Partnership:
there is a limit to which your friend is able to trust you with their money. And usually would only lend what they can forfeit, even if it is not enough for you. But put them in charge of their money, more so with some incentives, and they’ll be more than willing to put about everything they have. One way you can get to their pockets is making an offer for partnership. The more money they put in, the more partnership right and dividend they stand to enjoy. With them having control of their money, you can bet they be willing to give the needed cash. With partnership, you share the risk, and of course the profit. Isn’t shared profit better than nothing at all?

Internal Stakeholder:
sell part of the business to the workers. Some of them have contact to where they may fetch the money than you can ever imagine. As such, making an internal share offering opens up the opportunity for them to bring in the so needed money. Besides, having a stake in the company would drive them to be more committed to the success of the business.

GET IT DONE SOME OTHER WAY
When you can’t modify your plan, and cannot provide the require funds, you just have to do it in some other way, legally. This is where knowledge and innovation play out big time. Knowing how to get what you want without having to pay for it – at least, not straight away – is a skill that is necessary. It is important to realize that the rich and successful invest and grow their businesses as if they had no money. Some ways to go about this include: leveraging, negotiate and come up with an acceptable term of offer, short positioning.

Leveraging
 By leveraging I imply making effective use of other people resources e.g. time, skill, contact, influence, equipments, land, office, etc. and not paying them cash for it. But since it’s not for free, you pay them in some other way than cash. It could be by returning the favor, bartering skills, or by giving them part of the ownership right to the new business. This is a great way of cutting back on cash expenses. (I’ve personally applied this in at least two startups of mine).

For instance, you’re a lawyer and need office space to start your chamber. While you may not have that much to spend for the rent you could barter you skill as a lawyer for the rent. You may opt to become a personal lawyer to the landlord, in exchange for as much as the rent money can pay. You may also have people to work for free in your business; in exchange they become co-owners of the business. People tend to input better quality of work in this circumstance and with almost no supervision from you.

In our next and concluding post, we would we hope to explain short positioning and the power of negotiation as tools to getting your business started – even if you have no money. Watch out for it.

Oluwaseun Hephzibah, Innovator @ Stackpreneur

I'm an entrepreneur, IT Consultant, guitarist, chess newbie, amateur writer and a Nigerian. I'm a great motivator and I can push you to achieve your dream. ------------------------------------------------------ email: babatundeseun2014[at]gmail.com

We love comments