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Posted by on Nov 4, 2012 in Food For Thought | 8 comments

Save-Up to Start-Up

Save-Up to Start-Up

In a previous article, I talked about the 8 habits that hold corporate warriors back from entrepreneurship. Now, I want to talk about an external obstacle holding people from starting up. If you ask people why they don’t start-up a company for their idea, eight out of 10 will tell you “no money”.

This is a formidable obstacle especially when you have financial obligations (e.g. family to support, debt to pay off, home to pay for, etc). However, many entrepreneurs started and succeeded despite having very little money to start with. Take Apple, which was started by Steve Jobs and Steve Wozniak who both had very little money and were working for large companies (Wozniak for HP and Jobs for Atari). They ended up starting and growing one of the world’s most valuable companies! There are plenty of other examples such as Mark Zuckerberg with Facebook. What is more encouraging is that it is easier to start a company today than it was before. The cost of starting a company is much lower than it used to be; it actually is approaching zero with all the new technologies, crowdsourcing, open source software, and cloud-based services available for entrepreneurs. I will cover this in more detail in another article.

Seed Money

For the sake of argument, lets assume your startup will need money. Lets also assume that even if the startup costs are low, you will need to leave your job and focus on the startup. This is an opportunity cost since you will be giving up the salary you can make from the job. This means you will need some seed money to start and sustain your company until either it’s self-sufficient or you can get more funding to grow it.

Lets take a step back first and list the main sources where you can fund your business. The options are:

  • Your Savings
  • Your family and friends (either gift, investment, or loan)
  • Angel investors
  • Bank loan
  • Credit card
  • Special grants (e.g. government SME program, business plan competitions)
  • Incubators/Accelerators

Each of these sources has its requirements, pros and cons. I will cover them in more detail in a separate article. Now, lets focus on how you can save to finance your startup. Pick up three buckets and manage your money like this:

Three BucketsBucket 1– We will call this the “Minion” bucket. Put 10% of your income here first. Use this to invest in safe long-term investments. This money should work for you like tireless minions to generate even more money for you. And the money they generate should also work for you so they all keep multiplying exponentially over time.

Bucket 2– Let’s call this the “Play” bucket. Put another 20% of your income here next. This is money you will save for your startup capital. You can alternatively use the money to pay off your debts if you have a crippling amount.

Bucket 3– We will call this the “Living” bucket. Make do with the remaining 70% of your income. Arrange your life so you can live off this 70% of your income. You will probably have to give up some of life’s luxuries to fit into this budget, but its worth it if you really care about your startup. Whatever you do, do NOT spend above the 70% with the hope that you will have more money later on (e.g. when the startup or your investments make you a millionaire).

Luck favors those who are prepared. When you are disciplined about putting money aside and save a sizable amount in your play bucket, you will be prepared. Because by filling this bucket, you will be giving yourself a lifeline. The longer this lifeline is, the better chance you have to get your product to get traction with customers. You will have more time to develop it and more control over the process when you are your own financier. Later, the time might come when you want to get investors to fund your growth to the next level, which is an option since you might choose not to. When you have traction with your business, the investors will be more receptive to you and your company will be worth more when they invest.

So if you haven’t started yet, take out your three buckets and start preparing for your lucky day.

What do you say: What are your plans for funding your business?

 

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