I must admit to this fact that funding remains a major roadblock to most entrepreneurs across the globe. Many great ideas and projects are dead on account of funding constraint. But I must also say, a problem should never be an excuse for inaction. The bigger problem sometimes is not lack of capital, but lack of ideas. And here I want to share with you some ideas that you might ordinarily have taken for granted. Some might even sound crazy, I have seen them deployed successfully.
Before I get deep into the meat of this discourse, let me make this point very clear. You have NO RIGHT to give lack-of-capital excuse if you have not fully made up your mind to start or up-scale your business. You have NO RIGHT to give lack-of-capital excuse if you have not identified potential customers or clients interested in your goods or services.
If you noticed, my topic somewhat suggests that business owners and are not necessarily the same as entrepreneurs. And that’s the truth. Some business owners are so called because they have no jobs, and they can’t wait to have one and junk the business. However, an entrepreneur is in here for a long ride. That makes the difference.
Now talking about funding strategies, let’s consider the following points:
Not many may agree with this, but your personal savings are the surest and less-trouble-some means for starting or up-scaling a business. If you have a poor saving culture, this might not make sense to you.
For any visionary fellow out there earning a regular income (either from salaries or existing business), however little it is, saving is the first line of charge before personal expenses.
I do understand that this requires extreme discipline in the face of mounting family bills and pressures. If you’re the first-born, I sympathize with you. Lol!
As a rule of thumb, reasonable person should save at least 10% of his/her periodic earnings.
Funding from Family and Friends
I’m sure you would be wondering why I ever suggested families and friends as a source of funding given our varying experiences with them.
First off, if you’re starting or up-scaling your business, DON’T ever beg for money from family and friends. You will be frustrated and embarrassed. Rather, package your business into a term-sheet or a few-page proposal that speaks to the nature of your business, the number of customers that have made orders, your income projections, expenses, fund required, and expected share of profit due to them if they invest in your business.
If I’m a person of means and you come up with such an initiative, I would most likely take you more seriously. It’s a simple economic logic. I might not be interested in your profit share, but showing me my potential share of your profit if you succeed is enough show of good faith and genuineness on your part.
Credit from Suppliers (Services procured on Credit)
Our mothers use this model a lot and we often take it for granted. When you buy on credit from suppliers and pay after sale, you’re indirectly using the suppliers funds to run your own business. To ensure that this model doesn’t get you into trouble, secure enough customer or client base to mop up whatever you have on ground. And if you must sell on credit, make sure the credit period you give your customers is shorter than the credit period your own suppliers gives you. Say for instance, a supplier gives you 30 days to pay up, you can only give your own customers like maximum of 25 days. That way, you don’t get bogged with debt issues.
Okay let’s say you’ve secured a contract to supply an item to a company and the company would pay in 30 days time. And your supplier is willing to sell to you on credit too for 30 days, but with a bank guarantee.
Bank guarantee? That’s a big challenge. This is more like a bank loan. The bank will likely request for collateral. You will pay interest in the event of default. Too many troubles.
There is an alternative. It is called an ISPO (Irrevocable Standing Payment Order). What this means is that your bank is writing to your supplier assuring him/her that once your customers pay into the designated account, the supplier’s bill will be the first, amongst others, to be settled. The problem is, can your supplier trust your own customers to pay in 30 days time as promised?
Leverage on your network for fundraising
This includes network of old classmates, professional colleagues and past office colleagues. Not many people know that this network provides an easy funding opportunities. Some of your old colleagues are privileged to have funds they readily don’t have need for. If you don’t reach out, you won’t know.
If at your school reunion for example, all you discuss are flimsy social or political issues, then you’re missing out big time.
You may then want to ask, “how do I leverage on my network for fund sourcing?”
Spare some time to write out a few names of comfortable or money-bag colleagues in your network. Find ways to obtain their contacts. And if it’s been ages since you guys spoke, get a mutual friend to help facilitate the discussion. Life isn’t so hard.
Remember, these are not your friends on a deeper level, but colleagues. So, some bit of professionalism is required on your part when presenting your business to them for funding supports.
Once again, note that you’re NOT BEGGING for money, but seeking investments. There is no shame in seeking investment for your business expansion, from whomsoever, just as it’s no shame for marketers in banks asking you to place funds with them.
Then, you need to do a well-crafted 1 or 2-page proposal about your business to each of those listed colleagues. Thereafter, arrange for a meeting to discuss that proposal with each separately or all of them together.
If you’re getting positive response signals from one or more of them, then get a consultant to do you a detailed business plan. You can even build one yourself. But it must be detailed and defensible. As a guide, try to avoid putting a critical trade secret in the document. If your business plan contains everything about your business, please get your potential investors to sign a Non-Disclosure Agreement (NDA). This agreement forbids them from implementing your business plan without your consent.
Frankly, the ‘street’ is not smiling. Fish feeds on fishes these days, and it’s no joke. That’s by the way.
Thus far you could see that I have not mentioned bank loan. You see, let’s face it, it amounts to complete idiocy to start a business with interest-bearing loans. That business may not survive the third year in operation.
Funding from Angel Investors or Venture Capitalists
Now this final option assumes that you have some structures and some basic processes in place at your business. We have a couple of silent wealthy people around who don’t like to be seen out there but invest massively on start-ups. This caliber of people invest through some platforms. And you know what? They sometimes don’t even want to meet you. They just want to be sure you have a good business case.
I know a couple of such platforms, and these include VC4Africa, Lagos Angle Network , TL COM, Singularity Investment, CRE Venture Capital, ECHO VC, etc.
You may want to prospect any of the firms for funding. Best of luck.