I often hear the frustration from aspiring entrepreneurs that they do not have money to start a business, yet I have discovered in 2007 that it is perfectly possible to start a business without money. In this blog post I will share the story behind the discovery in how to start a business without money or zero investment.
What inspired me to find a way to start a business with zero investment
I share this story also in this podcast episode. In 2007 I was asked by the University to develop the practical entrepreneurship model. Now I don’t know about you, but I have realized that the word “practical” was in that question. This meant that I had to find a way to help 30 students to start a business. At that time we only had 30 students in our final year entrepreneurship class, today there are around 60 each year.
Granted, it is not that difficult to manage such a small group with a practical project, but the question was how do I create this your course in such a way that it is fair to all the students, irrespective of their background. You see in South Africa, students from all over the country and a variety of backgrounds would get access to university if they qualify. However, most of our students do not have rich and wealthy parents and at the time those students would become the first generation middle class, and even first generation entrepreneurs.
The problem there was that they had no networks, no financial backing and no leverages. So the approach proposed by Greg Fisher, which is really a lean startup approach or a bootstrapping approach for the middle aged who has years of experience and resources. In contrast, these students are young, so nobody trusts them, and they have zero leverages, zero networks, and zero financial backing. Some of them can’t even afford a textbook.
This meant that the practical entrepreneurship module had to be pitched for these unique circumstances. I had to go beyond that, but did not realize it immediately.
Starting a business with other peoples money
The first thing I thought, and even advice by some of my collages was to help them get funders such as loans or angel investors. I then thought deeply about this concept, and then realized but these students will have a hard time concluding such contracts as some would be younger than 21 years. The law at the time was that people under the age of 21 were considered children and that they cannot conclude contracts without the consent of their parents. This would create unnecessary friction in the module and place equality at risk.
However I also thought about the risk towards the institution. Although I am not a lawyer I could just imagine if one of these students lost their business and had been left with a loan as a result of this module. Looking at the success rate of business overall, this would mean that 20% of the businesses would fail within 2 years. Then what would happen? Would they then sue the university, or would they have a bad experience at the university as student and give the university a bad reputation? These were chances I was not willing to take!
So I scratched that idea, and felt depressed!
Getting mentorship from successful entrepreneurs
Since the loan, funding or any form of financial link to business had to be removed from this practical module. So the next idea was to explore the prospects of getting some successful entrepreneurs on board that my students could follow for a period of time and perhaps write a report. To be quite honest, I am a practical person, and this just did not cut it for me as an authentic practical experience. Granted, students would gain a network following this approach, but I had other much faster ways for them to develop a network. Well that was the first issue, but I thought if this is the way, then we will design the course this way.
So the next question was, who was going to be willing to have someone tagging along? This would create an administrative nightmare for us as we had to get 30 entrepreneurs, or even 15 entrepreneurs that will be willing to have someone be tagging along. How do I control what they learn, business management or entrepreneurship, or will the entrepreneur get them to do admin duties, which will mean that the students would not really enjoy and learn from the experience. These risks are real and having students who need to start their own businesses go into an established business without experiencing the real hustle, is not practical enough.
So I scratched that idea also! Now what?
Starting a business without money – the zero capital way
I knew that my students had to start a business to get an authentic and practical entrepreneurship experience. Also this will be really good for them. The problem was I was asking the wrong questions. I was asking, Where can we get money for the students to start a business? How can we get them mentors? I changed those questions to: How can they start a business without money? and How can I design and structure the course in such a way that I am in control of their experience?
If we can do this, then I believe we have the answer to my dilemma
Near the beginning of the semester, I did not work it all out yet, but I knew it must be possible. At the time I also signed up for business mentoring, and my mentor told his students that he will show us to take less than R1000 to R10 Million in less than 5 years. Translated to the USD exchange rate, that would mean to take about $100 and make $1Mil in less than 5 years.
I thought to myself, ok, perhaps there might be a way to get this done, but there is still a R1000 that I need to get to my students. I was thinking again, where will I get this from? And if that business fail, how can the student try again to learn from the process? Eventually I also scratched that idea.
Back to the drawing board, I ask again, ok, if you can start a business with little money, what are you buying with that money. My mentor literally bought website hosting, but used leverages which my students did not have.
Ok, so my question turned to: How can my students start a business without leverages and without any money? Also if you need R1000, how can we make this R0?
And I remember clearly the day I got this breakthrough. It was in the beginning of the semester in 2007 and I asked my students to come up with these answers. 30 minds were better than 1. Allthough I learned a lot from their journeys, they did not figure it out until I realized that the key to this question was sequencing and mindset.
The Zero Business Startup Sequence™
I call this the Zero Business Startup Sequence™. Instead of looking at external ways to solve the problem, we look at internal ways to solving this problem. Most other advice are still dependant on external sources to solve the problem of starting a business without money or with zero capital. This Zagger Business Startup Sequence™ is more a concept than a process or steps. What this means is that the entrepreneur has to develop their own sequencing of starting a business through a series of strategic questions.
I take both my students and the entrepreneurs I coach through this questioning to develop their sequence. The most important question in this process is the question of: How can I start this business without any money or with zero capital? Another question which is important to ask is: What do you want to buy with the money that you say you need? Once we have a list of what you want to buy then we can work with reducing that to zero. That is basically the concept and it takes about 10 mins to help nearly any entrepreneur to start with zero capital or investment.
Example of the Zero Business Startup Sequence™ Approach
An entrepreneur wants to start an online shop to sell a specific physical product. Let’s say Yoga mats. After following the lean startup principles, the entrepreneur calculated that she still needs the following to get her business started:
- Online Shop: $29pm
- Advertising: $200 (assuming $10 per sale)
- Stock: $200 (total for 20 item stock level)
- Domain name: $10
- Logo design: $49
At market related pricing she will make a gross profit of 50%. Meaning that she can turn the stock of $200 into total sales of $400
Immediately my USA readers will tell me that she can rather go into dropshipping and cut the stock costs. Although this might work, we are still in South Africa and dropshipping at the time of writing this article it is still a challenging business model in this country as the infrastructure is not reliable enough yet. Then what about the others?
Think for a moment, we want to start a business right? Do we have to start it with an online shop? Why is that software necessary? And no, WooCommerce is not an option either as our entrepreneur will still need to spend money on hosting, regardless, plus a mountain of time understanding it! Now, I have seen people selling goods online using Facebook and Whatsapp. Allthough this is not scalable, it is possible, and you don’t even need an online shop, no domain name and no logo design. That leaves us with advertising and stock to deal with and take to zero.
At this point in time the sequencing of starting the business is critical.
To get the sequence right, I normally ask the following question to such an entrepreneur once we have eliminated the unnecessary costs for startup.
Who can you target without advertising? Now advertising is typically a growth and leveraging activity, but if you have the money, it is by far the fastest way to test a concept. But remember this entrepreneur do not have money or do not want to risk the money on advertising yet. This question leads us to think differently. Often entrepreneurs are creative and they have an idea, immediately cutting the need to advertise initially. In this case the entrepreneur can approach various facebook groups and even some yoga Whatsapp groups as well. All she need to do is sell 10 to 20 stock items without advertising.
Speaking of stock, the problem is that she has no money for stock. This means she can’t sell? or can she?
Well lets change the perspective again: How can I sell without having the products in stock?
This is often the most easiest and most overlooked answers. You see this is also a mindset issue. This question is often left to last, because it creates the biggest internal challenge to the entrepreneur. All you need for this tactic is to trust yourself first. If you cannot trust yourself, you will be unable to execute this successfully and build a successful business.
In this case the entrepreneur can sell on order. She can take the catalogue from the supplier, use the photographs (with permission) and place images on social media and sell based on that. Of course she needs to know how to sell like this successfully without spamming people. Now this technique is often at first frowned upon. But once I tell my students and the entrepreneurs that I coach that they have already bought products and services like that in the past. If you bought any direct selling product, like Tupparware, you bought that product like this – on order. If you bought a house from a developer based on a plan, you made a very large investment based on a sale that took place based on this principle.
From the above questioning the following first four steps can be sequenced to start your business with zero money.
- Test the market through pre-orders of this or a similar product (note similar) without investing a cent.
- Re-invest the proceeds of the first step into your first leveraging tactic, in this case perhaps advertising if you exhausted your reach through the first tactic, otherwise purchase stock.
- With proceeds and a proven business concept, develop logo and branding and decide on website platform (Woocommerce versus Shopify)
- Deploy further sales strategies to increase sales consistently
Take note the above sequencing is case specific. In other words it might be different for a different business. You will see that when you change the sequence of these steps then you will need capital to start this business.
In summary, you do not need any money or capital or funding to start a business, and neither do you need any leverages to do so. You need the right sequence that overcomes these barriers in your specific situation.