People have been sending me messages and asking
me if it’s really possible to start a business with nothing, I mean “Zero”
capital.
My reply has always been “Yes”, but first, we
must define what’s capital. Once we define capital then everything else falls
into place.
The Oxford English dictionary defines capital as
wealth owned
by a person or organization or money invested, lent, or borrowed; the excess of
a company's assets over its liabilities.
This definition is drawn
from the accountant’s definition of capital, as it is captured by the balance
sheet. However, the balance sheet does not capture all the capital owned by a
person or organization.
Let’s explore this further…
In my 20+ years experience
as an accountant in the corporate world, while I studied the books of accounts
of many companies, I discovered that the tangible (fixed) assets of most of the
companies comprised only 10% of the total assets. The remaining 90% of the
total assets were generated by staff either as intangible assets (asset growth,
intellectual property, brand reputation, goodwill, etc.) or cash and cash
equivalent.
Clearly, the balance sheet
inadequately captures the value of capital as it only captures assets and liabilities
as defined in monetary terms. It does not capture human capital – capital
generated by human effort. Yet human capital contributes 90% of the total
assets of a company.
This means cash capital contributes only 10% of
the total capital of a business while the remaining 90% comes from the
knowledge, effort and creativity of human beings.
Now we know that the human brain is the greatest
asset – and a very powerful force. Most importantly, everybody has one
including you. Now that we understand what capital is (and what it’s not),
let’s move forward and see how we can apply it to business.
Essentially, business is nothing but an idea.
Ideas are conceived in the human brain and created by the human mind out of
necessity. What this means is that for the human mind to create an idea, there
should be a human need that drives the demand to create the idea.
Moving forward, there are as many human needs as
there are stars in heaven, and the number keeps increasing as the world
population keeps growing.
Look around you for a moment and you will notice
that people are looking for food, shelter or comfort. These are known as basic
human needs – the demand side.
There are two basic reasons why people spend
money – either to repulse pain or derive pleasure.
Now think of ways you can satisfy these needs –
the supply side. Your brain will think of a million ways. Write them down.
What just
happened?
Your human capital came up with a million ways
to solve the problem of food, shelter or comfort.
Now choose only one solution (the one that’s
most profitable) and draw a business plan based on only this one solution. A
business plan is nothing but a brief statement describing your business goals
and objectives, mission, owner’s background, how you will carry out business
operations, market or industry, services you intend to offer, and how you
intend to finance it.
I cannot emphasize more on the importance of a
business plan. Most people think of a business plan as a way to borrow money.
Actually business plans go beyond that – they serve as a blueprint so that you
do not lose focus of your vision in future.
Provide some proof where possible and conduct a
demonstration. Numbers talk, and you should use a lot of numbers. Hire an
accountant to do most of the number-crunching for you. Provide projected
financial statements for at least 3 years if necessary (balance sheet, income
statement and cash flow).
[Question to ponder: If you are the creator of a
business idea, why should you be the one to fund it?]
Option 1:
First approach your soft market (family,
friends, colleagues, acquaintances, etc.) and present your business plan
clearly indicating how they will profit financially by funding your business. Your
soft market may respond out of sympathy, but make them see the seriousness of
the business and believe they own the business.
[Be warned: Your soft market will respond only
if they know you well and can trust you].
Option 2:
Forward your business plan to as many people as
possible, even people who are outside your sphere of influence (your hard
market). Someone along the way will see an opportunity and buy your business
plan.
You may need to show some proof about your
business potential. Good marketing language and copywriting skills will come in
handy.
Make an irresistible offer. An irresistible
offer is an offer so compelling that only a few people can refuse it.
Option 3:
Find a job in a related industry (e.g. Food
company, restaurant, etc.) and offer to work for them for free. Meanwhile
become friendly with management and float your idea secretly. Most people will think you’re very smart and
will perhaps give you a job offer. Take the job offer and finance your business
with your savings.
[This is
one of my favorite strategies].
Option 4:
Sell your business plan to people who are
already in business. These people are more likely to appreciate the value of
your business and are likely to give you the capital you need in exchange for a
high return on investment (ROI).
If you target your potential investors carefully
you’re likely to score. You should build a good network with potential
investors before contacting anyone. They usually ask for references.
Option 5:
Look for angel investors. Most of these people
are serial entrepreneurs. They tend to invest in many businesses and will
expect a high return on investment
(ROI). Find out where they hang out (e.g. social media, forums etc.).
Join these forums and begin to share good ideas.
Don’t contact people immediately or share your idea with anyone first. Soon or
later someone is likely to notice you and contact. Patience is the key.
Offer free services to analyze a company or an
investment. Build trust, confidence and reputation among the group. This will
give you the social proof you need to approach other potential investors. Be
careful. Let logic and your instincts do the talking.