Starting a business without money can be daunting and challenging; nevertheless, it is possible. Starting a business without money requires dedication, creativity, hard work and persistence. With the right mindset and approach as well as persistence, it is possible to turn your business idea into a successful venture. Raising funds has always been an uphill task for start-ups, much more for those involved in tech entrepreneurship. Various innovative steps have been taken to curtail the general outcry of stakeholders that are associated with SMEs and their financing.
A lot of these innovative approaches explore solutions for making the needed capital to grow the businesses of these SMEs and also build their capacities to make them competitive. There are, however, other means through which prospective entrepreneurs could raise funds to start their businesses despite the challenges associated with raising capital for a business venture. The following paragraphs of this article have presented a few ways by which businesses could be started with little or no capital or even develop already existing business ventures.
- Creating innovative and problem-solving products
Entrepreneurs may use the capital of other investors for their business venture if they are able to build great and attractive business plans. Some features of such business plans may include one with a good description of the value proposition with problem-solution-fit, product-market-fit, good go-to-market strategy, market potential, and financial plan with good projections. The investment plan, cost structure, and revenue projections must all show viability in order to attract potential investors. The departure point could be doing deep research to identify a need in the market and to find out if there is a demand for what the business idea offers. Entrepreneurs should look for similar businesses and assess the competition they present. They should also explore a product or service that people need but that is not being offered or is being offered unsatisfactorily. They could then identify their skills and passions by thinking about the things that they are good at doing and passionate about. This will help them to identify the type of business they want to start. Through that, a solid business plan could be developed with a detailed plan outlining business goals, strategies and financial projections. This will help the entrepreneur to stay focused and organised.
- Debt financing as a source of capital
The traditional means of funding mostly for SMEs has been to resort to debt financing. Debt financing for small business ventures or start-ups, as postulated by a plethora of business experts, has been identified as useful means of raising capital to venture into a business. It refers to borrowing money to be paid back at a future date with interest. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay the principal and interest on the debt. Most financiers require conditions that must be met by the firms or individuals wishing to borrow. Evidence abounds that the efficient functioning of credit markets is of utmost importance for SMEs.
However, researchers accentuate that access to capital through bank facilities is considered paradoxical and a challenge for small ventures, including start-ups. Start-ups are often relatively new and lack a consistent track record of profitability that would demonstrate the capability to repay a loan. In addition, many SMEs lack assets that could be used as collateral. SMEs are also more prone to financial distress and failure. Commercial banks, because of these factors, consider lending to SMEs as high risk. Therefore, commercial banks often deny loans or offer loans to SMEs at higher rates of interest to accommodate the perceived high credit risk of SMEs. The inaccessibility of loans to SMEs can further be attributed to information asymmetry. This is the agency problem caused by a potential conflict of interest and asymmetric information between lenders and borrowers. Since banks do not have the necessary information; even small firms with profitable investment opportunities are turned down when requesting credit facilities. Banks, therefore, introduce restrictive covenants and also collect collateral from small firms to mitigate this problem. The high risk in the sector is often attributed to weak administrative infrastructure; inefficient business and risk management skills; inability to present bankable business proposals; under-developed financial and internal control systems; lack of transparency; and poor record keeping.
- Entrepreneur’s social capital and that of others
Entrepreneurs may either use their personal social capital or, if personal social capital is lacking or insufficient, make use of other people’s social capital – such as family members and friends. Entrepreneurs cannot use other people’s social capital unless they possess a relationship of trust and mutual obligation with the owners of the social capital. This is because, as it is the case with financial capital, other people’s social capital can be used resourcefully or devalued if the venture is unsuccessful. As a result, the social capital that entrepreneurs can most likely borrow is that of their own families or relations. Apart from the great likelihood that trusting relationships exist among family members, the focus on borrowed family social capital is because family involvement has been shown to positively influence the terms of borrowing by new business ventures or SMEs.
In light of these, partnerships, networks and relationships could be leveraged to boost entrepreneurs’ chances of raising capital for their business ventures. Partnerships with other businesses or individuals who have complementary skills or resources can help to leverage their resources. One may find a business partner who shares their vision and skills – entrepreneurs could look for partners who have similar interests and can help them grow their businesses. This may include other small business owners, community organisations, and even government agencies. They can work together to start the business and split the profits.
Entrepreneurs could also take advantage of free resources that could be leveraged from good networks. Such free but useful resources may include social media, online marketing tools, free website builders and community spaces, which entrepreneurs could use to promote their businesses and build their brands. They may reach out to people in their industries and build relationships with them to help them find suppliers, customers, and other resources.
- Crowdfunding option as a source of capital
Crowdfunding refers to a type of fundraising in which businesses, organisations or individuals solicit contributions from many people, usually in exchange for equity in the company. This is distinct from the more traditional method of obtaining funds through venture capitalists or angel investors, when a small number of players spend greater sums in your company.
Crowdfunding platforms could help entrepreneurs raise money from individuals who believe in their business ideas. This could be enough to start small as a small-scale business that requires little to no capital. One can then grow the business gradually and reinvest the profits. This could be done by focusing on a few key areas where one could make a difference, and grow their business from there. To achieve this, it is impeccable to be creative, think outside the box, and come up with creative ways to promote their business and attract customers. This can include hosting events, creating viral marketing campaigns, or even creating their own podcast or video series.
- Exploring government support programmes to raise capital.
The interventions of various governments in putting up institutions could be another source of financing for small and new business ventures. In Ghana, as in many other developing countries, one of the main reasons for the limited access to finance is that small and new ventures lack the capacity to operate businesses in ways that are consistent with the requirements of formal financial institutions, including preparing bankable business proposals and tools. While appropriate business development services, such as business plan preparations, could help reduce this problem, their quality and availability to small and new ventures are also problematic. Business plans help the financiers to get a clear picture of the strength and weaknesses of the business and inform their decision to make the needed capital available for the business.
Nevertheless, government interventions could be a step in the right direction in providing access to capital for small and new ventures. They provide the needed training and support services that boost the capacity of the entrepreneur and convince the financiers of their abilities to manage the capital. It is worth saying that most of these donor activities train prospective entrepreneurs or small business owners before going ahead to give them any funds as capital. Unlike commercial banks, the institutions would usually not require those collaterals that the banks demand, which the small businesses are unable to afford. Some of the interventions are schemes introduced by the government, either alone or with the support of donor agencies, to boost the capital potential of small or new business ventures.
- Capital from others through equity sharing.
It is often stated that: “It is for me is completely different from it is for us”. Moreover, it is evident in studies that debt is the preferred choice for SMEs over equity financing. Owing to their inability to access the public debt and equity markets, small and new business ventures tend to be heavily reliant on commercial banks as a source of debt financing.
However, it is often advocated for entrepreneurs to be less conservative or protective, but create room for investors to join their businesses with needed capital while they in turn share a percentage of their business in the form of equity. With the right and convincing demonstration of solid business prospects, venture capitalists, business angels and other forms of equity investors commit their resources to businesses so that they may get a share of the ownership. All that it may take would be exposing them to the business ideas and the potential that come along with them. This amounts to the prospective entrepreneurs using the funds of others, so long as the business idea can be convincing. Therefore, even as it is often stated that “it is for me is completely different from it is for us”, it is also stated that “a fraction or 100 is better than 100 of zero”. It is better to let a little part of shares go and gain substantially needed capital to boost the business, rather than to conservatively hold on and refuse to let the light of the business shine or eventually crumble the entire business. Nonetheless, entrepreneurs could be cautious and calculating in deciding the amount of ownership that they give up as equity to bring in capital to invest in the firm.
In a nutshell, it is essential for entrepreneurs to always keep in mind that beginning a business without their own capital involves innovativeness, effort and perseverance. To make their business ideas implementation successful, they will need to be resourceful and motivated to work hard. Hence, starting a business without the entrepreneur’s own capital could be an arduous task, but it is possible!
The author is an Entrepreneurship and Private Sector Expert and works with an international development organisation. He can be reached via [email protected].