Startup Myth: You need loads of money

As part of the continuing series on startups myth, let me address the idea that you need loads of money to succeed.

The capital game

Many people tell me “I would start a new company but I just don’t have the money to do so.” Unless you’re trying to launch a new airline, a new rocket or car manufacturer, I suspect that this is not as much of an obstacle as one thinks.

While I cannot address the whole breadth of startup possible (my startup experience being limited to internet and software companies), I can say that money is surprisingly available to those who are willing to put in large amounts of sweat equity and initial scrappiness can get you a surprising amount of paid stuff for free.

For example, Matt Mireles highlighted in a post how he did the “lawyer hop,” getting free legal services in the early phase of his startup. That’s just one of the countless ways in which a startup founder can get services for free.

I am often amused by the idea of co-working spaces where you pay over $10 per hour to have access to a desk. The reason I am amused is that a cup of coffee or hot cocoa from starbucks cost about half that and comes with an hour of WiFi service. This means that you get a seat, a network connection, a plug (if you’re luck) and a cup of coffee for the price of the coffee. If you think that’s too expensive, hotel lounges and libraries are another way to go as you get free WiFi in many of them.

This type of scrappiness may look downright cheap to most people and the idea of working for free can be revolting to many but it sets up a company for success by establishing a culture of thrift. That culture then focuses on spending money on things that deliver value to the customer instead of things that are non-essential to the business. In the longer run, that model also tends to reassure potential investors that your company will not waste their money.

Costs then and now

Prior to Keepskor, the last company I founded was a decade ago. Back then, a domain name was costing around $30, a server in a hosting farm was around $1000 per month per server (if you brought your own servers at cost ranging from $2000 to $10000 per server), and one had to paid other large amounts of money for things like email hosting, legal copies of MS-Office (needed to put together presentation decks, financial spreadsheets, and other docs).

Today, a domain name costs around $5-$10, Amazon will host you for as low as $1 per virtual instance and then scale up with demand for your services (and you don’t have to buy your own hardware), and things like emails and an office suite can be acquired from Google apps for free. Twitter and Facebook provide you with free marketing channels and you can use WordPress (either on a self-hosted or through their hosted services) or tumblr for free to run your blog.

So the startup cost of a digital business has drastically been reduced. I would venture that, between Twitter, Facebook, blogging platforms, and online services like email have also helped drastically reduce marketing expenses for ANY small business, whether they are digital or not. This is why you see so many food trucks now having their own Twitter account (it allows them to create a better relationship with their customers and alert them as to their location) and it’s why many restaurants are now asking their customers to rate them on yelp.

Ask and you will receive

There are some costs you should not scrape on. For example, Matt’s lawyer shuffle is all good but eventually, you should get a good lawyer and good accountant for your new company. That does come with some cost. But to cover some of those cost, you can get investors. And those investors do not need to be large scale VCs or multi-million dollar hedge funds.

In fact, you can start asking friends and family to invest in your business (and this is the way a good many startup get launched). It’s amazing what you can do or get by just asking. Often, people will say no but if you follow up with a question as to who they might know that could help, you can eventually find someone willing to put a bet on you and your company.

The secret, as with any success, is to keep plugging away, even in times of doubt. Whenever we suffer some form of rejection at Keepskor, I remind myself of Jack London, the author of “Call of the Wild,” one of the most respected treasures of western literature. Why, you may ask. Because his first novel was rejected by almost every publisher of his days but he kept trying until one accepted it… and then became an overnight success.

Note: this is part of a 5-parts series about startup myths. You may want to read all the parts: ideaspathrisk, money, capital.

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