Launching my first failed startup taught me many lessons about funding. I had just graduated personal training school and was ready to start making money. I already had a few clients but desperately needed the “latest” equipment. It seemed like a good idea to get a business overdraft.
I got the equipment I needed but was unable to make enough profit to justify the cost. When the business folded I was in debt with possession of £2000 worth of fitness equipment that I sold for around £300. The big lesson I learned from this was that the shiny new equipment you think you need means nothing if you can’t make revenue.
These days it doesn’t take much to get rolling. There are so many resources to learn online and plenty of great infrastructure software is open source and free. And passion doesn’t come with a price tag.
My next business was a lot more compact. I had just finished my first year at Uni and was making websites in Gumtree for £60 a go. I decided before I started that I was going to spend no money, invest nothing and get everything free.
The business ran successfully for the next few years, prices rose steadily and so did business. However, we could never quite make it out the basement. Things like Google Adwords, staff training, equipment and even a phoneline were out of reach because I was not prepared to spend anything. The business eventually stagnated and folded but this time by choice. With no debt, credit or payments the business slipped away as if it had never existed.
Following from this I learned to find a balance. Stay compact but know when to make the critical investments such as in staff training. Think hard and determine what’s really essential and what you can do without. What can you do with two people instead of ten? What can you do for free instead of paying out. What can you do in three months instead of six? What can you do if you keep your day job and build your startup on the side?
Run on limited resources and you’ll be forced to reckon with constraints earlier and more intensely. And that’s a good thing. Constraints drive innovation.
Constraints also force you to get your idea out in the wild sooner rather than later — another good thing. A month or two out of the gates you should have a pretty good idea of whether you’re onto something or not. If you are, you’ll be self-sustainable shortly and won’t need external cash. If your idea’s a lemon, it’s time to go back to the drawing board. At least you know now as opposed to months (or years) down the road. And at least you can back out easily. Exit plans get a lot trickier once investors are involved.
Every encounter with financial adversity has taught me a lesson, the most important of these is build value, test the waters before getting funding and run on empty for as long as possible. Outside money is plan B.