low-capitalThis is a common issue for an individual has a lot of ideas but cannot start a business because he/she lacks sufficient capital backup.
Assume that I want to start a decent Web Development company, but now I can’t afford to buy assets in the initial stage. If I hire a few employees, I’ll need sufficient amount of capital to pay them. Not only this, I’ll also need to register the company, pay for copyrights and for other legal paper work.
So how can an individual possibly start a company if doesn’t have enough capital?
I don’t want to be the harsh one here, but let me be the realist.
Every business needs capital or freedom (time) to operate.
Take my instance for example. In starting my company, I was only able to continue developing the product because I was willing to:
Just remember - nobody is going to always pay your bills just because of an idea in your brain. People want promise.
Crowd-funding is great, but software applications can’t be crowd-funded on Kickstarter (I’ve seen some exceptions), and investors rarely invest until you have a market share.
EDIT: Several applications may evade this clause: Kickstarter is for projects that can be completed, not things that require maintenance to exist. This means no e-commerce sites, web businesses, or social networking sites. (Yes, this means Kickstarter wouldn’t be allowed on Kickstarter. Funny, but true.)
Just a few of my thoughts. You truly have to survive as a sheep among wolves until you’re strong enough to fend for yourself.
If you have at least enough to register a company name and structure the rest can all be put off until you have cash flow.
As a web development company most of the tools you could use would be free in their basic form. You don’t need an office or any of those overheads.
As soon as you have the basic structure you need to focus on sales. Your priorities should be as follows:
A website and domain are very cheap. Bank accounts are mostly free. Sales is all dependent upon how you go about it.
It is usually free to attend business networking meetings and make the initial connections. Focusing on sales is the only priority you should have at this stage, once you have a client on board you are on your way. Not an easy journey ahead but at least on your way. Preselling, e.g. getting sales before you even have a company by word of mouth is actually how a few start. You just need your company before any contracts are signed.
The main advantage of starting a company now is that you don’t have to put money upfront for resources (laptops, software, offices, etc) like it was 10 years ago.
You can pay as you go for almost all the services you’ll need now. For your specific case, a web development company:
People: You’ll need people after you have some customers, and you can pay them per executed project (not a monthly salary).
Software: You can buy monthly subscription (pay as you go) for the tools you need like http://www.adobe.com/nl/creativecloud.html
Hardware: Everybody can use his own laptop.
Hosting: aws.amazon.com is your friend (or any other cloud hosting provider)
Office space: You can rent space on co-location offices (pay per hour/day) and you can work also remote.
Today, there are indeed many “free” online services for small companies. I started my company with 50$ of investment and worked on it on the evenings. It was enough to test the idea.
It just takes more time. It won’t work if you want very fast return on investment. After two years, I earn 200€ a month, which is fine but not enough for a living.
I think the most promising direction to go these days is crowd-funding. You’ll need some money up-front to cover your intellectual property protection costs, and that you can hopefully manage through a loan from the bank, but if you have an awesome idea, people will likely want to help fund it.
I also think it’s important to think about what you need. For instance, do you need “a few employees?” Presumably you’re working toward a particular website or app, so might one developer and yourself manage it? As for pay, again if your idea is exciting enough, you could pay with equity. There are lots of people excited about start-ups these days, so you could likely find someone willing to run with your idea if you gave them a portion of the company.
So work out what assets you actually need to get started. If you have a new process, you’ll want at least a provisional patent application done. But beyond that, what major expenses are you really facing? Registration is only a couple hundred dollars, which is by no measure nothing, but perhaps you can find someone willing to lend you the money if your idea excites them. You can also hold off a bit on registering while you’re still in development, which might let you save up some money on the side for those sorts of expenses. If you start out a budget of your opening costs and what might come up over the first year or two, that will help you visualize what you really need. Be conservative, do you need the best of the best equipment? Could developers use their own computers and work for equity? What’s the absolute minimum you need to get by? Once you have those figures in mind, look into options like bank loans and crowd funding.
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