Multi-million dollar startups get all the press, but they aren’t the most common form of entrepreneurship.
For anyone wanting to know how to start a business with no money, keep reading.
Truthfully, if you think you don’t have enough money to get started on your project, it can actually be quite a blessing! If you do start now, despite the lack of monetary abundance, necessity will dictate that you learn the art of resourcefulness in the form of bootstrapping.
– Richie Norton, author of The Power of Starting Something Stupid
Business, that’s easily defined – it’s other people’s money.
– Peter Drucker, management advisor and author
Entrepreneurship is often confused with the term “startup” and specifically, venture-backed startups.
Startups are a particular form of entrepreneurship. Startups and the venture capitalists who back them with multimillion-dollar rounds of financing dominate the headlines. In this version of reality, as popularly portrayed in movies like The Social Network, starting a business resembles a high-stakes game of poker–enormous amounts of money change hands before any value is ever created.
But startups are hardly the most common form of entrepreneurship. Entrepreneurs often own small businesses, with less than 5 employees. They aren’t tech companies, by and large. They’re services businesses were talented professionals like accountants, homebuilders, and attorneys sell their valuable time and expertise for money.
Not very glamorous, is it?
These businesses won’t show up on the front page of TechCrunch anytime soon. But for anyone wanting to know how to start a business with no money, it’s these less press-friendly forms of entrepreneurship that contain the most potential to transform your life and get you financial freedom.
What is Entrepreneurship Anyway?
In 2010, photo-sharing startup Color raised a then-historic $41 million in venture capital. All before they had a single user or even a live app to download. The Atlantic recounts the fallout of Color’s epic mess:
It’s hard to do much in private when you raise $41 million before doing anything else. The good news is that kind of raise buys you gobs of attention — and startups certainly need attention. The bad news is that that kind of raise buys you gobs of attention — maybe before you’re ready for it. Color definitely wasn’t ready for it.
When they actually did launch, nobody could figure out how to use their app, or even why they’d want to. (It had a two-star rating on iTunes).
The story of Color isn’t the way entrepreneurship is supposed to work. An entrepreneur isn’t supposed to receive $41 million to flush down the toilet before having a single customer. Entrepreneurship is about creating a new market where there wasn’t one before–not convincing a bunch of VCs to give you gobs of cash to fund a pipe dream.
In an interview with Inc., Harvard Business School professor Howard Stevenson discusses his now classic definition of entrepreneurship. According to Stevenson, entrepreneurship is the pursuit of opportunity beyond resources controlled.
- “Pursuit of opportunity” means that entrepreneurs seek economic opportunities where there weren’t opportunities before. This pursuit is dogged, intense, and focused.
- “Beyond resources controlled” is the important bit for the purpose of this article. Entrepreneurship is about resource constraints. Most entrepreneurs bootstrap e.g. fund the business with their own money, time, and energy before ever hiring employees or leasing office space.
The story of Color is the story of too many resources, too prematurely.
Here’s how the Inc. article talks about Stevenson’s definition and its impact on business:
By focusing on entrepreneurship as a process, his definition opened the term to all kinds of people. Plus, it matched the one demographic fact HBS researchers already knew about entrepreneurs—they were more likely to start out poor than rich.
“They see an opportunity and don’t feel constrained from pursuing it because they lack resources,” says Stevenson. “They’re used to making do without resources.”
Even the Harvard business professor who popularized the term entrepreneurship 38 years ago doesn’t think you need lots of money to become an entrepreneur. In fact, like the story of Color illustrates, too much money might be a curse for your entrepreneurial venture.
But are the challenges to starting a business different today than they were three decades ago?
Young People, Entrepreneurship, and the Savings Problem
The Millennial generation was hit hard by the Great Recession.
Lost in the story of collateralized debt obligations, credit default swaps, and risk-gobbling Wall Street bankers (basically, the follies of Baby Boomers), the truth is that it’s the Peter Pan generation that’s been forced to defer adulthood due to the economic downturn.
A March 2013 report by the Urban Institute, a nonpartisan economic and public policy research center, showed that young Americans in their 20s and 30s today have an average wealth that is 7 percent less than their Baby Boomer counterparts did 30 years ago.
That fact alone would be troubling, but when you also factor in the stubbornly high rate of unemployment for Millennials, lower rates of pay, and decreasing home values, the outlook gets downright grim.
If these generations cannot accumulate wealth, they will be less able to support themselves when they eventually retire. This ﬁnancial uncertainty could reverberate throughout the economy, since entrepreneurial activity, saving, and investment tend to build on a base of conﬁdence and growing wealth.
I think it’s interesting that the report explicitly draws a line between the lack of savings for Gen X/Y and entrepreneurial activity. It makes sense. Many entrepreneurial ventures start with funds from the savings of the entrepreneur. If younger Americans are unable to save, they’re less likely to start ventures the conventional way.
But what if there’s another way? What if you had to start a business with no money? What if you had to because the forces that destroyed job opportunities for your generation were forcing you to create your own job?
I believe that’s exactly what’s happening in the economy today.
Enter Lean Startup: How to Start a Business With No Money (the Agile Way)
Agile development has found its way into the mainstream after working wonders in the software world for more than a decade.
We’ve talked about Lean Startup methodology before, the entrepreneurial cousin of Agile software development. Lean Startup emphasizes testing Minimum Viable Products or MVPs quickly and inexpensively in real life situations, instead of wasting tons of money to create rigid 5 year plans.
Lean Startup and agile practices in general can help you start a business without money.
Let’s break down how Lean Startup and the agile mindset can help you bootstrap your first business.
4 High-Level Steps to Start a Business Without Money
1. Baselining. Going lean in your new business will require you going lean in your personal life first. Baselining is the practice of cutting your personal expenses down to their absolute minimum. In other words, carrying the least personal overhead as possible. You can start a business with only $100 dollars–but if you are drowning in credit card card debt, you need to get right first in. If you are truly, truly broke, use these agile rules for living on a budget and implement these cash management strategies in your personal life first to get back on track.
2. Runway. Once you have your personal finances in decent shape, you can start building a runway. Your runway is a unit of time, not money. It’s the amount of savings you have divided by the amount of cash you burn through in a month. So for instance, if you have $5,000 in the bank and spend $2,500 a month, you have a runway of 2 months. Your Personal Runway (how long you can survive before having to go back to work) should be 12 to 18 months before you quit your job. If you don’t have that kind of savings, then you need to build a second stream of income while working a day job. (This is tough, but doable.)
3. Prototyping. In Lean Startup fashion, you want to use your limited resources to create your first MVP. Think of the MVP as an experiment. You’re testing whether a particular offer is appealing enough to your target market to get them to pay or your product or service. To start a business without money, I highly recommend you take the route of a freelancer, independent contractor, or contract employee first. Trade on skills that you already have. Use proven methods to generate business startup ideas. Chris Guillebeau covers how you can turn a simple 5-page website into an instant consulting practice here.
4. Iterating. There’s that I-word again. The feedback you get from your customers on your MVP will allow you to iterate, or make changes to the offering, until you have an offering that your target market doesn’t want to live without. Instead of wasting your time and money building out a huge product offering that your clients may or may not need, Lean Startup and the agile mindset push you to get involved with and find your 1,000 true fans as quickly as possible. That’s the path to becoming profitable.
If I have made any of this sound easy, I apologize. It’s not.
But the only way to control your destiny in a time when industries are being disrupted and the pace of change is accelerating is to own your own business.
Whether that business is just you or 5 employees or 500 employees, the agile era is forcing employees to embrace their opportunities and their independence in ways that no previous generation has ever had to.
Are you up for the challenge?
Image by mathias shoots analogue.