So you’ve got an idea for a startup. That’s a good first step on the long staircase to entrepreneurship. From this point, you’ll need to make a plan and find the necessary resources to get your business off the ground. Let’s dive in to a handful of ways that you can prepare and get the funding you need to turn your bright ideas into a reality.
Before you’re ready to seek funding from others, take some time to prepare a pitch for your business. Investors often ask a variety of questions before agreeing to pull out their checkbooks, so here are few basic pieces of information that you should have in your back pocket before seeking out funding for your dream job.
Show Current Success
If you’ve ever watched the hit show Shark Tank, you know that investors are looking for more than just a concept. They want to see results. It doesn’t necessarily matter if your idea is revolutionary; they want to see that you’re the kind of person who can turn simple ideation into execution. A good way to do this is through small-scale, low-cost experimentation, which can allow you to make a case for growth. Once you start asking for money from investors, know that they’ll be looking for quantifiable successes.
Show Previous Success
You should also highlight work you’ve done with other startups or businesses – whatever seems relevant in your industry. Highlighting yourself as an expert in the field is a good way to build rapport and trust, which will make investors more likely to work with you.
Show the Plan
Before you ask for someone else’s money, make sure that you know how you’ll spend it. Simply saying “We’re going to grow the company,” won’t cut it. How will their money improve your business? And more specifically, using the data you’ve gathered, what kind of return should the investors expect from their investments? Having answers to these basic questions will set you apart early on. If you’re looking for a place to start, take a look at this post on creating a business plan.
When you’re first starting out, it may be difficult to acquire a small business loan. The small business loan industry usually wants concrete results from an existing business – that has been established over a few years – before lending to you. A good alternative for startups is a personal loan, which, depending on your situation, can give you $2,000 – $35,000 for your new business. The payback period of these loans is typically 36 or 60 months, so you’ll have time to get your business established while paying off this loan.
And once your new business has some legs beneath it, then you can begin looking at small business loan options.
The term angel investor simply refers to professionals who are wealthy and willing to invest in a new generation of entrepreneurs and startups. In most situations, they need to meet the Securities Exchange Commission’s (SEC) definition of an accredited investor. This includes having a net worth that exceeds $1 million, as well as a yearly income of $200,000 as an individual or $300,000 with a spouse.
Finding an angel investor has never been easier. These investors give people money for small business growth. In return, you sell them the equity in your company. While using an angel investor can be a great way to get hundreds of thousands of dollars quickly injected into your company, there are two primary negatives. First and foremost, you’re selling a portion of your company. And secondly, just to get funding from an angel investor, you usually need to show that your small business has already been proven to work.
It’s a thrill to have investors open up their wallets for your startup. Crowdfunding companies like Kickstarter have made names for themselves in getting initiatives, products and new companies off the ground. In order to pitch your business or concept, you should start by understanding the Kickstarter audience. One of the perks of crowdfunding is that you don’t necessarily need to have your startup up and running when you make your pitch. In some cases, you can offer sketches of products or well-thought out business plans, showing the investors that you have clearly considered how you’re going to execute your business. However, only about 40% of approved campaigns get funding, so you’ll have to figure out how to set yourself apart. And if Kickstarter isn’t right for you, there are many other crowdfunding sites that could give your startup the boost it needs.
Seek an Advance from a Client
If you’re just starting out with a small business, you know that even a client or two can be hard to come by. But if you’ve offered real value to a client through your service or product, you may be able to approach them about getting an advance while your startup completes development. In return, your client will be the first to receive the services/products you create, giving them a leg up against their competition. This may take the form of white-labelling or early licensing.
Find a Small Business Grant Online
Grants are often looked at as the golden geese of the small business world. Grants are sums of money given by an organization – often the government – to be used for a specific purpose. This being said, grants are not given away arbitrarily. Most state and local small business grants are given to improve an aspect of society, whether that be efficient energy tech, child care or a marketing campaign for tourism. In other words, if you’re not in one of these specialized or niche industries, you may have some difficulty finding grant money.
There are, however, still some opportunities available for small business grants. Locating a grant for a small business or startup may take some time, but you should certainly see if any are available in your industry.
Fire Bullets Before Cannon Balls
In the New York Times bestseller Great by Choice, authors Jim Collins and Morten T. Hansen describe the surprising attributes of companies that succeed. One such quality was the discipline of testing small, inexpensive methods and ideas before dumping large sums of cash into a concept, or, as they put it, “Fire bullets, then cannonballs.” It’s easy for a business, small or otherwise, to chase after an idea with complete resolve, spending too much money on an untested idea. It’s better to try lots of ideas and fund them with no or little cash (bullets). Once you find that one of your “bullets” is profitable, then you pursue it with greater funds (cannonballs).
As you go about finding funds for your startup, it’s highly recommended that you take the time to see which of your bullets is going to hit before firing a cannonball of money. Testing your company’s opportunity with these low-cost bullets will give you more fodder when making a pitch to potential investors. Show them which bullets are hitting, and they’ll give you the funds to fire a cannonball.
Starting the Business of Your Dreams
If you’re ready to start a business, start by getting prepared. Most people have good ideas, but very few actually take the steps to turn their ideation into execution. If you’re going to make that next step, gather your thoughts and spend some time searching for funding opportunities. Put out some feelers, check out your options and then take action.
What kind of business are you starting this year? Let us hear your successes and struggles in the comments below!
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.