Does it really take money to make money? » SMEInsider

Does it really take money to make money?

Have you ever been put off setting up a business due to a lack of investment? We’ve all heard the old maxim that it takes money to make money… but it’s just not true, according to these entrepreneurs.

Kevin D. Johnson, CEO of Johnson Media

“Don’t believe the hype about needing money to start a business,” says Johnson.” It’s deceiving, and if you believe it, you could be ruining or delaying the success of your own endeavour. People who repeat such generalisations are sometimes simply trying to sound wise and learned, or they are trying to justify why they are broke”.

Access to start-up capital when you’re not really ready for it can even be damaging, he says. “I cringe when I see a young entrepreneur’s start-up costs include items like office supplies and computers when they are absolutely unnecessary. These individuals don’t have the right state of mind of seeking to save money whenever possible.”

Whilst there are inevitably many large-scale, infrastructure-heavy projects that will need significant investment before they see any return (“It often takes money to make a whole lot of money”), Johnson, who has launched a number of successful start-ups, suggests that the vast majority of entrepreneurs follow his example and just crack on with their idea using whatever resources  they have at their disposal. “For each business, I assumed that raising money was not even an option, and I am glad that I did. Had I heard that awful phrase, I may have delayed or killed my ventures, thinking that I had to raise money. Instead, I figured it out,” he says. “Having no money doesn’t mean you have no resources. You’ve got something, so get started on your new business—and without spending any money if you can.”

Marianne Cantwell, Founder of Free Range Humans

Your business should pay you from day one,” says Cantwell, who offers coaches to those who want to “escape the corporate cage” and make a living without an office or a boss. Cantwell believes that when testing a new business idea, you shouldn’t be spending more than a token amount, or even investing a significant amount of time in the idea, until you know for sure that it has legs. This, says Cantwell, means setting up “play projects” and “prototype projects” to test whether people actually like what you have to offer.

A play project is the one you do for yourself, to get into something you’ve always wanted to do, to explore something about yourself, to get over a barrier, to allow yourself to just DO something you want rather than dream (this one doesn’t have to be paid),” she says. “A prototype project is where you try out an idea (that might become a business) in a small way, either to see what it’s like to actually do it or to validate it by getting paid.

The concept, Cantwell explains, is that you start by just playing with an idea you love in your spare time, seeing how people respond to it and honing how you present it without having the stress of relying on it for income. Then, you take what you’ve learned and roll out a mini “prototype” version of the business  that lets you see whether anyone is actually willing to buy or pre-order what you have to offer. Only then, she says, should you really throw yourself behind that business. Even in the long term, she advises, doing as much as you can yourself and eschewing “big ticket” items like long-term flashy office space, expensive web design  or even permanent staff, helps you to stay agile enough to scale right back when you need to. “My idea is that you don’t need to hire people except where the cost of not hiring them is higher than the cost of hiring them,” she says.

And finally…

So there you have it: don’t let a lack of capital put you off setting up your own business. For more practical tips on setting up a business without funding, click here for top tips from Kigu’s Tom Cohn.