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Reasons For A Barebones Business Start-Up And Alternative Financing

Aug 17, 2007
Jeff Hester has these observations about whether the current trend in the Web 2.0 world constitutes too much money chasing too few sound business ideas.

Here are 10 reasons to keep your business start-up (whether online or off) lean and mean at least in the early years.

1. If you can cobble it together on a home PC, there's probably no reason to take $1 million in Venture Capital to launch

2. That $300,000 you've got down for third year earnings in your big professional looking business plan isn't in the bank yet. You and your SBA advisor just made it up, remember?

3. I don't care how cool the idea of stereophonic underwear sounds when you pitch it. There may just be no market for it.

4. Conversely, just because you've picked what you think is a nice conservative business to start, doesn't mean you'll make a killing as the umpteen millionth company selling brass door knobs.

5. The money from a satisfied repeat customer will always last longer than the money from that incredulous bank loan officer, and there's no interest attached.

6. There's only one business plan that guarantees you've found a thriving market and that's last year's sales receipts.

7. Projections will not buy you so much as a cup of coffee at Dunkin' Donuts let alone pay your grocery bill for the next six months.

8. Imagine how nice it would be after making $100,000 on a really good business idea to be able to keep most of the money

9. Sure, your business advisor thinks your plan can't miss. He's already got a job.

10. Whether on the Internet or in a busy downtown or suburban shopping mall, traffic does not equal sales. To test this axiom, try to find a 100 percent occupancy rate in any business district.

Also, here are a few suggestions on finding alternatives to traditional financing options. Of course, as all small business people know, the most obvious place to find a business loan is at your local bank.

But a traditional bank loan, even if you qualify, means long-term debt and the possibility of endangering your home and other personal assets on a potentially high risk venture.

Here from Inc are three suggestions to avoid traditional financing options for your small business start-up:

1. Make your first customer into an investor

When Scott Mitchell founded Learning Productions in Temple, AZ., his first customer, Avnet Computer Marketing Group, was so impressed with his pitch they offered him office space, access to a computer network, equipment, covered his first payroll and even the cost of employee benefits. The help enabled Mitchell to keep start-up costs down to $150,000 instead of a projected $1.5 million and he later sold his company for $16 million.

2. Use drop shipping and credit from vendors

Michael and Marilyn Stopka's mail order European statuary reproductions are often shipped directly to customers from suppliers who have also been willing to advance the Stopkas' Arlingrton Heights, Ill.-based Design Toscano Inc. credit as well.

3. Go to your community for help

In a variation of example number one, local entrepreneur Robert "Joe" Murphy convinced 322 residents of Mount Ayr, Iowa, population 1,700, to invest a combined $640,460 in his community grocery store. Here, instead of a big corporate client, as in the first example, local consumers were asked to contribute to a service they valued, a local grocery store after one had closed its doors in the community and another had moved to the edge of town.
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