You have a great business idea, and you know you can earn a tidy profit once it gets up and running. But here’s the dilemma: to start a business you need capital, and the only way you can get capital is from…the business.
The solution is to get the business off the ground, through partners or suppliers who are willing to trust and invest in your idea before the cash comes in. Here are some tips on how to tap your network, using the most powerful capital of all: relationships.
1. Money is not the only form of capital.
Many entrepreneurs have started their business by forming alliances and partnerships with people who specialize in the resource that they need.
Think about it this way. You have an area of expertise (ex. baking amazing cookies). You have a wonderful recipe that you know could topple Mrs. Fields’ cookie empire. This is a resource.
Another resource is time. You have plenty of hours to devote to your business. There are other people who may have money, but would rather not get into the nitty gritty of starting and running a bakery.
So don’t say ‘ you don’t have anything.’ You do! You’re not going around asking for freebies or help. You’re looking for an exchange of capital: a chance to share in your business idea and your time, in exchange for money to expand it.
2. Look for people who need what you have.
Don’t go to a friend and say, ‘Hey, can I borrow money for a business?’ Instead you can say, ‘I have a business idea, and it could potentially earn xx a month, far more than what you would earn by putting money in a bank.’ Or, ‘You’ve been talking about quitting your job, but worrying about a regular source of income. What if you invest in my business? I’ll build it while you work, but it may one day reach a point when you can quit your job and still have a good source of income.’
3. Trade resources.
Let’s say you need a website, but can’t afford a programmer. Why not approach a website team and offer something in exchange? For example, if you’re good at marketing, you can design high-quality brochures for their own sales efforts. Or you can offer space on the website where they can put their ads: ‘this website was designed by…’
The most effective trade, however, is when you partner with someone based on a business’ future success. ‘Help me build this business and make it grow, and you’ll earn far more in the long run.’ There are specific concerns, though, in forming businesses with friends or relatives. Read our article, “Can Friends Make Good Business Partners? How to make it work.”
4. Build the idea.
You are securing resources on the basis of trust, and the only way to earn trust is to have a solid business idea. Work out the business plan and all the details: logistics, market, competition, etc. Run informal FGD’s with friends, business associates, relatives, neighbors—asking their opinion so you can finetune the proposal and tell your investors, ‘People said they would pay xx for this kind of product.’
5. Prepare a compelling presentation.
Invest your time in creating a powerful presentation. Make a mock-up of the product in its packaging. Think out and write a script that is brief, factual, and presents your idea in the best possible light. (Read our tips on preparing for business presentations and secrets to effective powerpoints.)
And end the presentation with a concrete offer. Don’t just say, ‘I hope you invest.’ This is too abstract and people will easily forget or waffle about. Give figures or specific ways of involvement: ‘If you come in as a full partner, you will get…’ or ‘If you provide this type of service, you will get…’
Having concrete partnership packages also protects you, because the business document helps you manage the other person’s level of involvement in your business. (Try reading our article on the different kinds of business structures.)
Photo from sharpastoast.com
Thanks! This article got me thinking… maybe I really should go ahead with my plans to start a biz. I always had problems with capital but this gives me a new perspective and an idea on how to go about it.
This gave me a new perspective! I’ll also share it with friends who I know are interested in starting a business.