It’s so well-known that it’s essentially a business cliché. Everyone looking to start a company or improve their start-up has heard it, and probably thinks it must be acted on: “You have to spend money to make money.”
On the surface, it makes sense. The companies we view as successful have all had enormous amounts of capital invested into them to get them where they are. Companies that are just starting out need seed money, and fledglings need injections of capital to improve themselves and break into the big time.
However, I’m going to argue that it’s counterintuitive for many start-ups to follow the policy of constantly drinking money to become a “real company”.
Beyond a small amount of seed cash, a start-up doesn’t need all the bells and whistles that many entrepreneurs see as “essential” to starting a business. A marketing blitzkrieg, a shiny corporate image, an office with an automated call answering machine and a powerful internet presence are not necessary when you’re just starting out and hamstring hundreds of entrepreneurs every year.
If you have chosen your niche well and are willing to put a little elbow grease to work, you don’t need all the shiny corporate baubles that conventional entrepreneurial wisdom dictates. Say you want to sell shampoo. You select your niche, a traditional, masculine model to appeal to a market that may be alienated by the luxury/high-fashion image of modern toiletry advertising, and you order a few samples to put the product together. So far, you only need the money for those few samples.
Once the product is set, you order a larger amount to sell. Store it yourself if you can. Any spending that you can possibly avoid, you should. Market simply. Cold calls to targeted stores that may carry your product, a free or cheap web page like an Etsy, eBay or self-made site, a favor called in. You just need to land your first customer.
Again, so far you haven’t spent much money. Play to your strengths to ensure it stays this way. Are you a good writer? Sell online or make your pitches in writing as much as you can. Are you a charismatic salesman? Better to make your pitches in person or over the phone.
At this point, we’re still being very careful not to overreach ourselves. The temptation exists to try to get the product into every store in a chain or order 100,000 units to sell online. The time will come for such moves, but it will come after the investment has paid for itself. Once the first batch of product has sold, you’ll have the money to reach a little further next time. A bigger batch, a wider net of distributors. The goal is to grow slowly, to avoid the risk of collapsing under a flimsy framework. Think of a scaffold that spreads haphazard over a huge area and cannot support itself – the same amount of material carefully built in a smaller area will be much more stable and sturdy.
Over time, you’ll be able to set the money aside for reasonable investments, but the key is always a restraint and waiting until the product itself has generated the investment capital. Instead of injecting your own cash or struggling for money from investors, you let the idea pay for itself. Believe me, this will be harder than it looks. When starting a business, the temptation is always to try to build something shiny and impressive as quickly as possible. Not only are the corporate calling cards like a big office or a cool logo important for convincing others of our legitimacy, but they are also important to our own sense of success. We need to feel that we are succeeding, and we have been taught that these things equal success – so without them, we feel like we’re still small-time.
The secret is that that is okay. It’s ok to stay small for a while and build your business slowly, sensibly and frugally. It’s ok to have to wait to employ a marketing expert or buy a beautiful website. When you finally do get them, they’ll be yours, and they’ll be signs that your business is strong enough to keep them.
Of course, there will come a time when you need an external investor to really take your business to the next level. The main difference between the rapid-growth models employed by our most glamorous role models and this method of growth, however, is that this is the first time that an external investor has been required. Where other businesses need large investment just to get off the ground or remain afloat, you only need it once you are fully established to reach new heights of success. Therefore, you can be calm and confident with your potential investors – if they don’t want to invest in you, you’ll just continue your slow, inevitable climb to success. If they do like what you’re offering, your climb gets quite a bit faster.
Without the pressure of a do-or-die pitch, you are free to project an air of real confidence and to shop around for investors. Not for you the desperate air of someone who already has an over-stretched business to pay for. Your venture has been built slowly, carefully and with a Spartan attitude that has meant the business does not have a single expense or feature that it can’t pay for itself.
The take-home message seems painfully obvious, patronizing, even. Note that I’m not just saying “be frugal” or “don’t spend foolishly.” I’m saying that the best way to build a business is often the way that runs counter to our impulses, to the actions of our business heroes (who are our heroes because their stories are unlikely, and therefore entertaining) and to the expectations placed on us by society. This business is yours. Nurture it. Let it develop the power to stand on its own.
Don’t spend money on your business that didn’t come from your business. Take the harder road, take your time, then take your rewards.