Over my last two articles, I have helped readers with the basics of business planning and management. I have also highlighted areas to consider if requiring a bigger pot of funds to get started.
This month, I want to show that you can build something meaningful with little investment.
This insight provides my advice to you if you are expecting to self-fund your startup.
Let’s put your mind at ease and promote the advantages of a self-backed startup.
Here is what you need to know.
Let’s Look at Cost Efficiency
Firstly, from my experience, I see far better efficiency in spending – whether that be costs or investments – from people who are spending their own money.
It’s just way more considered. I’ll provide an example of buying a £10 gift.
The most efficient means for buying that present – that is buying a present that the receiver most wants – would be if YOU use YOUR money to buy the present for YOURSELF. This way, you get precisely what you wanted, at the price you were prepared to spend. Highly efficient. Zero waste.
This is far more practical than when you are using someone else’s money to buy yourself a gift. Now the cost of the item – or more commonly in business, the Return On Investment – is less considered.
The least efficient method of spending is when you are using someone else’s money to buy someone else a gift – or should I say, investment bankers investing other people’s money, in other people’s business.
I genuinely see the difference between the above scenarios every month.
As I mentioned in my second article on Funding, comparing a business with too much investment against a business with little, can be like watching a cycling race with Bradley Wiggins versus Augustus Gloop. It’s not about the bike.
Starting small and slower focuses the mind on understanding the marketplace, your competition, and most importantly your desired customers.
The urgency is enhanced when you’re running out of money in eight weeks. You need to be efficient with both your money and your time.
I spoke to my friend Mark Masters who has shared his thoughts on the best route to success.
Mark Masters from marketing consultancy We Are The Media is someone who believes in organic growth and demonstrated the ability to bring people around the business message.
He went out to prove this with You Are The Media, a marketing and media learning and training community. Mark highlights that when it comes down to little investment, relevance and adding value are core strengths.
Mark explains, “One of the most liberating things is to build people around your space. This could be customers, this could be prospects, this could be people who are interested in what you have to say and want to get a bit closer.”
“As well as knowing the marketplace you are selling to (and a need for it), we can now raise the game, by delivering value to those who are interested and ready to buy. In my world, this is by sharing useful articles (such as what you are reading here), audio, or video.”
“It all starts with making a stand for something you believe in that aligns with what you do as a business. Over time, people can see you are a good person to work with and connect with. This in turn builds trust, which can lead to revenue. I believe you can build something organic that attracts people. It is hard work as you have to make sacrifices and when you start with very small resources, time becomes your biggest asset. You can build something meaningful with little investment.”
Let’s Get Technical
We must concede that company’s with a heavy investment can scale quicker. They do advertise more and they invest more in their product. The problem I see most often is that they do too much of each of these.
The You Are The Media message and community would not have been enhanced with a £20k per month advertising budget. Would greater investment in the product have helped to?
The accounting formula Return On Capital Employed (ROCE) – an equation I present to clients as a part of the Monthly Management Pack (under the right circumstances) – is a good baseline for understanding the efficiency of your business.
Of course the less you have invested, the more efficient the return.
So, say your business makes £25k in profits for each of the next 3 years. This is a good start. But it’s better if we can measure this against what you’ve invested. If you’re a freelance consultant, you may have invested just £500 to get started. That’s a Return of 50x, every year!
If however, you received £100k from investments to get your business off the ground, still, after three years, you’ve not broken even on that investment. Furthermore, you may have to split those profits with your kind investor.
What Are The Keys To Success?
The most successful businesses – both startups and more mature enterprises – have a plan.
They will have agreed targets. Agreed objectives. They will understand what needs to be achieved and by when, and how they are going to do it.
It could be a list of five things to achieve in the year.
- Achieve the website redesign in January …
- Start investing more time in Social Media by March …
- Employ a part-time someone by July …
It could be as simple as that.
Using outside expertise or consultants is a valid means of understanding how you are going to do it, by the way. You do not have to do everything yourself. You do not need to know how to do everything. Neither do you have to feel comfortable performing every element of the business operations (such as sales, social media, finance).
Finally, successful businesses have a grasp of the numbers too.
They will certainly have costed their plans through an Annual Budget (or Financial Business Plan) as well as keeping forecasts updated monthly.
They will then want to be updated on their progress (or financial Actuals) and re-allocate their resources accordingly.
If you are prepared to put in the work, know your market, and your marketplace know you, organic growth without an abundance of outside investment can result in the development of a business success. It is achievable.
Email me at email@example.com to let me know how you are getting on or if there is an aspect that comes down to your plan, that you’d like to explore further.
The right Virtual Finance Director is as committed to your business as a full-timer but without the overhead.
I’m Chris, and I help business leaders clarify, simplify and improve the financial performance of their business. Maybe I can help you too?