One of the biggest challenges for any young entrepreneur is the money problem. How do you take your idea from dream to reality while making barely enough money to pay for gas for your car or tickets to the movies? This week we’re giving you the 411 on three paths to startup success.
Bootstrapping
The first and most common method of funding your startup is called “bootstrapping.” The concept is simple: spend less money, use fewer resources, and make smaller batches of product in the beginning until you have enough money to make more. This was the method of choice for Toms Shoes. Founder Blake Mycoskie made just a few dozen pairs of shoes in the beginning, loaded them into duffle bags, and sold them to friends and family. When he had sold those, he had more made. Then more. And more again. Eventually, Blake was able to fund large orders of shoes just by using the cash he had made off of the last set of sales. Bootstrapping requires you to think strategically. You may have planned to purchase a big industrial oven to bake your cookies, but in the bootstrapping stage it may be wiser to rent a commercial kitchen at night to avoid upfront costs. Ask yourself: what can I do now with the resources I have on hand? It may seem like a small start, but it’s a wise start.
Friends & Family
Depending on how your family views money, the idea of borrowing from friends and family either sounds like a dream or a nightmare. But for many young entrepreneurs, taking out a “personal loan” from friends or family is the only way to get the money they need to launch their business. There are pros and cons to this method. First, you are putting important relationships in a vulnerable spot. It’s one thing if you default on a bank loan; it’s another to have your default hanging over your head at the Thanksgiving dinner. Be wise with your inquiry. Have a backup plan to pay it back if the business doesn’t work out. And give your family or friends an incentive to lend, such as free product or a share in the company.
Kickstarter
Kickstarter is a relatively new method of fundraising that is catching on like wildfire. Simply put, it’s a website that connects people with ideas to people with money. Entrepreneurs, aspiring film makers, and charitable visionaries alike can post their ideas on the Kickstarter website with incentives for donors to contribute. The most successful example of Kickstarter funding is the Pebble Watch. The Pebble is a watch that connects to your Smartphone and displays info like incoming calls and texts. The watch was posted to Kickstarter before it was even created, to raise money for manufacturing. Their goal was lofty: $100,000. The result? As of today, they have raised over $10 MILLION. That’s right: ten million dollars. Obviously, you can’t expect to raise $10 million by posting any idea on a website, but if your idea—and your incentive to backers—is compelling enough, you may just raise enough money to launch your business.
So Biz Kids, how are you raising money to put your ideas into action? Have you had any success? Let us know in the comments below!