Two Financial Approaches
One of the scariest aspects of entrepreneurship is money: the startup costs, the revenue flow, extra capital for growth. So much money is needed to start and sustain a business, and most people with a product or service idea and a business plan can’t make their dreams happen simply because they don’t have the money, or perhaps because they’re scared of losing all their money.
According to Bloomberg, 8 out of 10 businesses fail within the first 18 months. That puts a lot of risk on not just the entrepreneur’s savings and potentially age of retirement, but on their family as well. So if you have a business idea, how do you decide which financial approach is best?
Go big or go home, right? Risk it for the biscuit? Don’t let failure be an option and you won’t fail?
The first few stages of entrepreneurship can be delusionally delightful. Moves are being made and creative juices are flowing as your dream comes to life. It’s a whirlwind of events, and often requires an incredible amount of dedication in the form of time and money to make it happen and keep the momentum going. Some entrepreneurs say go all in. Try your hardest with everything you’ve got so you can’t look back and wish you had.
While this method is often necessary and can pay off in the long run, there are considerable risks. Harley Courts, founder of Nooklyn, lost $100k in his first business venture starting a skateboard company. The company failed and he had no money left over, but what he did have was experience to make a successful second go at entrepreneurship. Tim Westergren, founder of Pandora Radio, also put all of his eggs in one basket by maxing out 11 credit cards (and deferring his employees’ payment for two years) until the company finally reach profitability. MyPillow bootstrapped all of its earnings for years, running on horrible credit yet smooth talking their way into manufacturing deals until founder Mike Lindell finally got the company into green numbers.
Starting a business is rarely a smooth and easy ride. Hiccups, both avoidable and inescapable, are around every corner. Because of this, going all in for entrepreneurship is ideal for younger future CEOs with no kids or spouse depending on them. If the business goes under, less people are affected; if it succeeds, there’s a whole future of growth and opportunities ahead.
Joanna Galbraith, co-founder of Letterfolk, advises those with an idea for a business to start as a side hobby. While not all businesses can grow with half of the attention of a full time job, it’s a much financially safer approach. She and her husband used their $20,000 they had saved up for a downpayment on a house, a risk in itself, to buy the upfront materials needed to start their letterboard business. Her husband Johnny kept working at his full time job to support their two daughters while they waited for the business to take off.
Keybar, founded by Mike Taylor, started as a side hobby while he product tested different models for his jangly key solution. It was only a matter of months before he and his wife both left their jobs to focus on their expanding business.
Entrepreneurship starting as a side hobby is ideal for a cautious family or those without access to immediate large funds. Sometimes those with a business idea don’t have access to the upfront working capital needed to start a business, so deciding between going all in or not isn’t even an option.
Look at your savings. Can you start your own business with that capital? If you leave your job, do you have enough savings to live off of until you predict your company will reach profitability? If you don’t have the money to go all in, how much time will it take as a side hobby? How can friends and family help? Don’t let money be an obstacle for your business idea. But do be smart about how you go about spending that money.
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