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I DON'T
HAVE
ENOUGH MONEY CHAPTER 4
TODAY’S TALK
Question
Starting without money is more challenging that statring with money T/F
Examples of Companies
Bootstrapping
Take Away
Conclusion
QUIZ 1 at 4:00 pm to 5:00 pm
SOME PEOPLE FAIL TO START
THEIR VENTURE.
WHY?
According to survey, October 2002 survey of 500 fastest growing, 14 percent had
opened the venture with less than US$1 ,000 (Bartlett, 2002).
ZAPLET
V.s
RIGHTNOW TECHNOLOGIES
Greg Gianforte
Founder of Rightnow Technologies
Zaplet
invested a lot of money
as compare to
Rightnow
Greg says that revenue generated from sale and smart
moves
MONEY MATCHING CONCEPT
CASH IN AND CASH OUT
In order to stay in business, the simple fact is that every venture (profit and
non-profit alike) must take in at least as much cash as it spends, and in the
case of for-profit ventures, ideally a bit more.
"it takes money to make money," taking investment money at the outset
starts a new venture off in a deficit position. As far as the venture is
concerned, any money it does not generate through sales is money it owes
to another-even if the "other" is you.
This chapter is all about bringing that cash deficit as close to zero as
possible or maybe even into the positive. This is in stark contrast to the
venture capital approach to start-ups, where step one is "raise US$5
million." Here we encourage you to try to think about "not having money" as
an asset in itself-an asset that challenges you to build a more robust
business, forces you to be more creative in how you deal with customers
and partners, and allows you to maintain more control over your venture.
Money Matching:
Thinking of Accountants V.s Entrepreneurs
Accounting works to extend the money matching principle over time. For example,
while it costs US$500,000 to buy a new machine, we don't charge the entire amount
to expenses in that year. Instead, we spread it out over the number of years the
machine will be producing product revenue, say ten years. We match the expenses
and the revenues through depreciation.
You can start now. Instead of waiting for a prospective funder to come along, be inspired by
your business, and write you a check, there is nothing holding you back from starting your
dream today.
You can start learning now. Most ventures we know and love were created through interaction
with suppliers, customers, partners, and employees. Cash can encourage you to ignore those
inputs, and not learn as quickly.
Cut your waste. When you have money, it is easy to waste it on speculative ideas. But if you
have none, its hard to throw it out the window.
Limit your downside. If you do not have a huge amount of cash invested in the venture, the
mistakes you will inevitably make will likely be proportionately less huge as well.
Increase your upside. Taking investment generally means selling equity. And the more you
sell, the less you have when it comes time to realize the value created in your venture.
Increase your creativity. Studies show that constraints increase creativity. When you have
money, the first answer is always to spend it. When you don't, you add a constraint that makes
you more creative.
TAKEAWAY
HAVING NOTHING IS A GOOD THING
The reality is that most firms in the world operate without any outside funding,
instead making decisions with an eye to affordable loss/acceptable downside. This
is because they place a high priority on staying in business and being cognizant of
keeping downside risks acceptable.
Starting without invested capital means that you get the feedback and the cash you
need from customers, in order to refine your idea, as well as new and productive
partnerships with people whose slack resources ….USE UNUTILIZED
RESOURCES. you put to valuable new use.
Guts feeling. BARBQ. Starting without invested capital also forces you to go out to
try to make a sale, which is when you will learn whether you really have a business,
or not. You can't make a big mistake (fail cheap and early) and you don't have to
give away a lot of equity/control.
But in a study published in 2004 Erik Hurst & Annamaria Lusardi showed that
wealth is not important for starting a business. Little amount of money pay you
more due to their limitation
This chapter is all about bringing that cash deficit as close to zero as possible or
maybe even into the positive. This is in stark (empty) contrast to the venture
capital approach to start-ups, where step one is "raise US$5 million."
Here we encourage you to try to think about "not having money" as an asset in
itself-an asset that challenges you to build a more robust (strong unlikely to fail)
business, forces you to be more creative in how you deal with customers &
partners, and allows you to maintain more control over venture