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: ideas, path, risk, money, cap­i­tal.