Hey, want to know how to give a businessperson the biggest, most painful migraine of their lives? Just whisper the word ‘loans’ in their ears.
Money can’t buy you happiness, but it sure will buy you a more successful company. Money is the fuel of your company; it allows you to have a smooth experience marketing your company, designing your product or boosting sales. One big mistake entrepreneurs make is getting loans from banks before they even start their own business in the first place. These entrepreneurs end up swimming and floundering in a pool of debt that will eventually force them to call off their business plans and wait for another ‘grand opportunity’.
So before you go running off to get your bank loan approved from your local bank, read on to find out what funding really is and if you really need it now in your current situation or not.
Bootstrapping: Basically ‘Business Minimalism’
Facebook Inc. anyone? Facebook Inc. is one of the many examples of successful companies who started ‘bootstrapping’ before reaching out to other outside investors.
Bootstrapping is starting a business with very little or no money without the help of venture capital firms or any other investors. To put it in even simpler words: you’re on your own. This is typically where you will start, and how many other companies have started.
The Stages of Funding
As mentioned before, bootstrapping is a part of the first stage of your startup’s funding process, which is the ‘seed money’ stage. In this stage, you get by with what you already have at your disposal. This means personal savings account, money from family and friends and even some of the money you keep under your pillow or sock drawer. You are scraping enough money from different sources to get your business up and running.
The second stage is getting money from customers. This is actually where the company starts to ever so slowly grow. When you have customers willing to pay for the service, this money is pumped right back into your business and straight into its funds.
Of course, some startups in between these stages may resort to taking on loans from banks or relying on credit cards to get the job done. This is usually temporary for small fixes like getting more material, equipment or hiring more staff.
The third stage is registering your company. Now, this stage is optional, but for startups and entrepreneurs just starting out, it’s a good. This allows your company to be recognized your country or state as a legitimate company in its own right, which in turn, will attract angel investors to you. However, you have to be able to make your company as noticeable enough on the market as you can, because no angel investor is going to invest around 500k in a failing company. Once you get your first angel investor, you’ll graduate to the bigger kids’ playground; the ‘venture capital zone’. This is where you will try to impress the bigger cats of the business jungle and convince them that your company is worth the big investment; we’re talking no less than a million dollars.
The last stage is where you allow your company to go public and that’s offering your stocks to the public; anyone can buy them. Investment bankers are a great asset in this last stage. What happens is that they’ll call you up, ask to do all the paperwork required in the IPO process and therefore sell your stock to clients who are well-off.
A really important thing to note here is to be careful, because at this point, you’ll feel like all of your stake is being greatly reduced. But that’s a good thing. It means your company’s growing. One thing to do in order to regain more control over your company is to only take investments when you need it.
As you can see, the funding process is a very lengthy procedure that will require some patience on your part. Along the way you’ll be gaining a lot of valuable experience like when to take out an investment at the right time, how to make the most out of the investments or getting a clearer view of what your company’s vision is.
And remember, these stages don’t apply to every single company. Every company goes on a journey that is custom-tailored for that particular company. Always go with your ‘entrepreneurial gut instincts’ because in the end, you’re the only one who knows what your startup needs to flourish.