Funding my business — do I bootstrap, borrow, crowd-fund, sell equity — or is there another way?
Questions (and challenges!) around funding are common, and are often the biggest obstacle someone with a great business idea will face. We can borrow money from friends or family; borrow from a formal lender; crowd-fund; bootstrap (ie. fund) the business ourselves; sell equity (ie. a part or % of our business) — or we can get creative. A good friend of mine had a great business idea, but was cash poor.
He’d found a product; negotiated pricing; created a wonderful brand; and built a website, along with a 1000 other tasks required to get his idea up and running.
Supporting a young family with two children, paying a mortgage, and living of an average salary whilst starting up his new venture meant that the business struggled to grow and take full advantage of opportunities that were coming its way.
He funded it himself initially; then sold some equity in order to buy stock; however, still couldn’t quite get the cash flow and inventory to a point that would allow the business to take off.
Borrowing wasn’t an option (at least not from a traditional lender), as the business was required to have 2 years of full financials before it would be considered for an overdraft or loan - which is a very common, and very frustrating reality for small businesses.
As a result, the business lived hand-to-mouth. There were generous and heart-felt offers of loans from family and friends — but as is often the case, the Founder still had doubts (mainly self-doubts), even though from every angle the brand and business he was building looked solid and a sure-thing.
A funding option that would be effective and acceptable to the business owner seemed not to exist.
Then came an opportunity out of left-field; and one the founder hadn’t necessarily expected; as it wasn’t the normal way a new, small business finds the cash it needs to grow.
A business associate in a similar market was launching a new venture, however, had shortcomings in terms of skills and experience with online marketing, e-commerce and social media. On the other hand, he had a depth of experience in retail operations, stock management, and had access to funds.
There was the ability for one business to make up what the other business lacked, and so a partnership was formed.
We can't be good at everything — and so whilst not the most obvious way to fund a business, by finding a business partner with the right needs, structure, culture, experience and fit; a great outcome is being enjoyed by both.
Funding a business can be achieved through a variety of mechanisms and structures — just make sure you are realistic about the pros and cons of each method — and stay open to ways to achieve your desired outcome you may not have thought of.
Cheers
Garrick
