In Africa, I sometimes get approached by young people to fund their businesses. I offer something much more valuable – my time. I offer to coach them.
And, surprisingly, no one has taken me up on my offer. Not because they think my coaching is valueless – they have just been brainwashed to believe that money solves all problems. In life, and especially in business.
They get married to their unproven ideas and they write a business plan – deluding themselves into thinking that reality will mold itself around their wonderful plans. Well, we have all heard the saying, “the best laid plans of mice and men…”
The Bakery Start-Up
Here are two recent examples – one young lady, very bright, and ambitious was intent on opening up a bakery business. Her plan included buying an oven, baking equipment, supplies, and ingredients.
My coaching was to find someone with the basis equipment and supplies and she invest a small amount in the unique ingredients and make some initial batches.
Then try selling them.
Her market was young people near a university. She wanted to sample the baked goods to determine the market.
See a problem here dear reader?
People will happily eat samples, yet never buy your product!
She needed to first see who would pay a small amount for her goods.
She then needed to create detailed, tested recipes of baked goods that people would buy that were the same on Friday as on Monday of last week. Consistency is everything with food.
I suggested she find someone to pay a small rental fee for the use of their ovens in a period when they weren’t using them, rather than investing in expensive equipment.
Finally, what is the budding entrepreneur’s skin in the game? Why should an investor put their hard earned money at risk? Why do young entrepreneurs think money is freely available?
She stopped connecting with me – she ignored my offer to coach her which at my hourly rate is not cheap. She just wanted me to loan (gift?) her money. So sad for her, as she is bright and ambitious.
The Yoga Studio
Another awesome young lady approached me online to see if I was interested in supporting her yoga business start-up.
The plan was to rent space.
Here she was putting the cart before the horse. Again, I offered to coach her – she ignored the valuable, free offer. She wants money.
My coaching would have been to find space that someone would let her use for a cut of the fees to determine first what the market is. The town she picked was small and with no real professional class, so I had doubts that anyone would be either interested in yoga, or if they were willing to pay for it.
Is this addiction to money an African phenomenon?
We have many clients who spend more time looking for investment capital than customers.
Yet there are sooooo many examples of wildly successful, bootstrapped companies who created awesome cash-flow and profits with very little capital.
Here is another example from times gone by…
African Travel Business Started with Zero Capital
When I was 18 year old, travelling alone with a knapsack throughout Europe, I met a slightly crazy New Zealander in London who was advertising for months-long tours of the entire continent of Africa for young people.
The ad – in a travel magazine – was a very tiny classified ad. And it had a small black and white photo of a large Bedford truck. The ad described a life of adventure in a truck outfitted with airline seats. It was all inclusive – camping gear, tents, food provided.
You just needed to pay 50% upfront. And adventurous young backpackers did.
The catch was this – the picture of the Bedford truck (I think it was an old army truck with massive tires as tall as a man), was sitting on an army surplus lot soon to go up for auction. The New Zealander did not own the truck! He had no capital and needed the upfront deposits to pay for it.
He pulled it off and ran a successful back-and-forth touring business from London all the way to Cape Town, South Africa.
I am certain a grand adventure was had by all (I never went for the record!)
Many of you dear readers have heard of how Bill Gates, the founder of Microsoft told Adair Computers he had an operating system for their computers. He didn’t. And he went off and wrote the code, circling back to seal the deal!
Bill Hewlett abd David Packard started Hewlett-Packard or HP, in a one car garage in Palo Alto, California. That would definitely keep overhead down.
There are some modern – happening right now – examples of start-ups that didn’t look for capital as a source of cash-flow. What they did was get super creative and prove that their business model worked with real revenues first!
Here are a few of their stories…
Jon Oringer was a professional software developer and an amateur photographer. He combined this set of skills and used 30,000 photos from his personal photo library to start a stock photo service that is currently worth $2 billion dollars. His capital efficiency paid off and ultimately turned him into a truly self-made billionaire.
When one of the entrepreneurs behind RXBar shared his ambitious business plan with his father, the paterfamilias told his founder son to stop theorizing and start pounding the pavement, “You need to shut up and sell 1,000 bars.” (Good advice!!) That advice, plus $10K in savings, proved to be worth $600M as Kellogg’s ended up gobbling up the start-up.
Tuft and Needle
Despite facing a competitor that raised 3,994,900% more capital, this mattress upstart has been able to grow to over $100 million in sales using profits and just $6,000 in seed capital.
Craigslist parlayed an early launch in the first dot-com boom into a durable long-term advantage. Despite having only 40 employees and not substantially updating the site for decades, Craigslist is the #17 most visited site in the US and is reported to generate hundreds of millions in profits.
Plenty of Fish
The dating site was founded in 2003 and didn’t change functionality or aesthetics much over the following decade. As with Craigslist, Plenty of Fish’s biggest asset was its reputation as a well-stocked pond. Ultimately, the company ended up selling for $575 million dollars.
…was founded in the dot-com bubble of the 90s, and though it wasn’t as disruptive as peers like Kosmo, it was more durable. It survived the dot-com crash and steadily grew into a nine-figure run rate, only raising $100 million 11 years after getting started.
…is a phone networking company that had 150,000 customers, over $30 million in annual revenue, but no Venture Capitalist on the books, and was eventually acquired by Citrix.
It was founded in 1999 when the mantra was “get big fast,” and many of its contemporaries crashed and burned. By focusing on excelling at the dull, yet profitable work of managing clinical data, the company survived and now employs over 4,000 workers and generates $320 million dollars in annual revenue.
4,000 Full-Time-Equivalent employees. 18 million customers. $300 million plus in revenue. Not bad for a bootstrapped start-up taking on Oracle and Salesforce!
If you would like to read about more companies like those ones above, kindly check out this article:
So my challenge to all you entrepreneurs out there is – get creative for sales, not investment capital.
Thanks for reading…