I was watching an interview of billionaire Mark Cuban by Bloomberg, about business. If you are a basketball fan, then you probably know that he is the owner of the Dallas Mavericks. He is also an investor on the reality show, “Shark Tank”. All of that aside, he said something during his interview that goes against the grain of what novice business owners probably think about business ownership. He said, “First of all, if you’re starting a business and you take out a loan, you’re a moron”.
Mr. Cuban was a little harsh and abrasive in his wording, but in general, he is correct. People spend too much money getting their business started. They put themselves heavily into debt and deplete their savings in order to get their business started and to sustain it. Depending upon the industry that is entered, a small business can be started with little or no money. Some types of businesses may require a small loan in order to get started, but it is not very wise to take on massive amounts of debt.
Should a new business owner decide to incur debt to start a business, these conditions should exist prior to starting that business:
- The business owner needs to have a very thorough understanding of the market that he or she is getting into and the competition. In other words, do the research.
- The business owner needs to have a solid plan and objective for the business. Some people manage to fake it until they make it, but this is not typical for a successful start up. In other words, know what you are doing.
- Have some customers willing and ready to buy. In other words, if you take out a loan to start up, you better make sure that the business will generate enough money to cover your business expenses and living expense.
The idea that you must use OPM (other people’s money) in order to start a business, is an old, outdated idea. The first few times that I heard the words, were from Donald Trump’s lips. OPM is usually borrowed money from banks or investors. Honestly, I don’t think that this idea works too well in this economy (for small business owners). Banks are hesitant to loan money to individuals or businesses unless the loan is backed by good credit, a high income, and/or valuable collateral.
There is a common misconception that a business should be some sort of complicated, sophisticated operation. Nothing could be further from the truth. I think that this myth is a major factor in why people may believe that going into debt to start a business is the norm. A successful business could consist of just one person or a small group of people. If you dream of running a mega corporation, then start small, set some of the business profits aside and parlay some of your profits into bigger and better projects.
The basic key to starting a business with little or no money is to start small and make sure that you minimize business expenses and overhead. So you should try and avoid or minimize spending on rent, utilities, and unnecessary niceties that give you the illusion of business success. That is why a home based business is one of the least expensive forms of business. You could even make your “office” a Starbucks and a laptop.
Another way to start a business with little or no debt is through forming partnerships, outsourcing and bartering. In all of these business relationships, you are basically leveraging the power of other peoples’ efforts. It may also reduce dependence on full-time employees. This will save a lot of time and money.
A nice quick-read, that delves into starting a low-cost business is “The $100 Startup”, by Chris Guillebeau. It lays out an easy to follow blueprint for starting a business by serving others and providing value. Most of the people that he interviewed for the book, were “unintentional entrepreneurs” , who started a successful business with under $1000. There are plenty of jewels and nuggets throughout this book. If you don’t learn anything else, know that the author’s definition of a business is this: offer a product or service (of value), that people are willing to pay for, and have a method to be paid.
Link to the video that I refer to:
© Copyright 2014 Susan Broadbelt