The following is a guest post by John Williams. He created Logo Garden to give everyone starting their own business access to professional looking logos. John is a long time member of the advertising industry and has written about branding on leading websites. His experience with branding led him to make an easy to use logo maker available to startups and DIYers.
No Capital? No Problem. What You Get For Nothing Is Priceless
You have an idea for a business.
But you've got obstacles.
You weren't born with a silver spoon. You sold your silver spoon last year to pay your mortgage. You've got no connection to deep pockets. Your idea is so far-out no one listens long enough to grasp its brilliance. Whatever the reason you can't secure capital for your start-up, or whatever your excuse for not moving forward with your idea, forget about the opportunity your non-existent investors are missing out on and think about the opportunity you're missing out on.
Starting a business without any capital can be a hugely rewarding experience.
Here's what you can expect to get in return for starting a business with no outside funding:
A large infusion of cash might instigate growth your business isn't ready for. Using only your own money means you can grow at your own pace as your business has the resources to handle it. Investors, on the other hand, are all about the bottom line and the deadlines for getting there. Who could blame them? But sometimes a business needs to flesh out its problems and work out the bugs in fits and starts without the pressure or forced reckoning of goals imposed by someone on the outside. Being small and independent means you can be flexible and adjust your business as needed. Being beholden to investors means you may have to adjust according to their say or their expectations rather than taking your business the direction you see fit.
As you grow your business organically you benefit from constant reality checks at every turn - whether it's unexpected expenses or a sudden change in market conditions. No one is pushing you forward or filling your head with dreams of newsworthy buy-outs or what you should name your super-yacht. No one is letting you feel as if you have a cushion where you don't and then comes calling for a pay-out.
During economic times like these the hedge-fund-manager manner of excess is downright tacky. Instead, what's in style is the image of a frugal and innovative operator who thrives in the face of daunting conditions using only his or her wits, sweat, and discipline. Steve Wozniack and Steve Jobs quite famously started Apple in a garage. Barbie got her humble start in a garage as well when Ruth and Elliot Handler began a business making picture frames. Being resourceful they made dollhouses from the wood scraps and before they knew it the doll-houses were outselling the frames. That dollhouse business became Mattel. Clients, customers, and potential future investors love these stories. They're hugely inspirational. And while Apple and Mattel grew to bounds their founders could never have imagined, think how many highly successful smaller businesses are out there quietly growing and earning profits after starting from nothing? Entrepreneurs sporting frugal style and practices all the way to the bank and inspiring people along the way.
Efficiency and Operations Boot Camp
With financial backing not of your own making, you may get a false sense of where things stand. In a recent Harvard Business School newsletter, HBS Senior Lecturer Shikhar Ghosh warns that one of the reasons start-ups fail is too much up-front funding: "It covers up all the mistakes, it enables the company and management to focus on things that aren't important to the company's success and ignore the things that are important." But when it's your own seed money you must depend on, you are all too aware of the implications of each expense. You are constantly reevaluating operations to make them more cost-efficient and productive so that your hard-earned money isn't wasted but is smartly invested in the growth of your business.
From the initial budget to managing overhead, creating a business from slim funds is a hands-on sink-or-swim crash course in keeping a business afloat. When it's your money, your whole livelihood is depending on every choice you make so choices are made carefully and thoughtfully. You'll quickly dismiss fancy office space with high rent and fashionable interiors and think about working from home for the time being. You may even have to keep your day job to pay your bills at first. You'll want to work hard because you won't be able to pay anyone else to help you. You'll want to start with an idea that costs more in sweat equity and time than expensive materials or manufacturing. You'll want to bend over backwards to provide superior customer service because it costs you nothing and it just may separate you from your more established competitors.
The Fruits of Your Labor
The credit, the satisfaction of single-handedly guiding your creation from conception to execution, the experience, and the profits are all yours when you're on your own. The fruit of your labor could even be a character-building exercise in failure, but at least you can own and learn from that experience instead of having to navigate it via someone else's terms. Independence can be scary, but that scary reality is all yours.
Whether you succeed or fail, you will emerge as a business-person with experience in every aspect of owning and managing a business. That experience will serve you well in future ventures, and you will know that you've done what others said was impossible. That's the kind of confidence that breeds more confidence and more success. The story of how you did it is something you will carry with you from the garage to the corner office or to somewhere you haven't even thought of yet. The journey is yours and where it will take you is up to no one but yourself.
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News was released today by VentureOne (owned by Dow Jones),
which tracks venture investment data. Venture-backed companies are now getting
pre-money valuations (pre-money means the value of the company before the
capital is invested) that are the highest they’ve been since the peak of
the last bubble in 2000.
Median pre-money valuation of U.S. VC-backed companies reached
$18.5 million in 2006 (vs. $15 million in 2005). At it’s peak in 2000,
the median valuation was $25.1 million. Sounds like valuations are inching
back again. I’m not sure if this is good news or bad news.
Of course, for early-stage startups the information that is
much more relevant is what the valuations were for first-round companies. In
this case, the pre-money valuation was $6.2 million vs. the $5.9 million in
“That’s all fine and dandy,” you’re
thinking, “but what does that mean for me?”. Well, that depends.
For most entrepreneurs, you’re probably not raising
venture money – and for those that are, you’re probably not going
to succeed in raising it. Nothing against you or your company (I don’t
know you, and don’t know your company), but the numbers are working
So, the question is, if you are not raising money does it help you or hurt you that VC
valuations are up? I find this to be an interesting question. First, I am
going to guess (because it happens to be true in my case), that when VC
valuations are up, the price other
types of investors are willing to pay (such as angel investors) are up too. For
many of us, that’s good news. Also, VC valuations can be seen as a proxy
for the overall boisterousness (uncanny, I thought I had just made that word
up, but it passed the spell-checker) of the market.
Overall, for no particularly rational reason, I generally
feel that the rise of VC valuations (even though I’m not raising VC
money) is a good thing for startups. There’s a small part of me that
thinks that since general “market prices” are rising for startups,
my startup is worth more too. But, I could be totally delusional and
What do you think?
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