“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.” – Paul Graham
Have you ever considered working for yourself; ergo, opening your own startup? There is little doubt that, for a lot of people, self-employment, albeit riskier than full-time employment, is preferable than working for a boss. Should you fall into this category, it’s important to lay as much of your startup’s groundwork as possible before you resign from your current position and venture off on your own.
What is a startup?
Investopedia.com defines a startup as “a young company that is just beginning to develop. [Furthermore, they] are usually small and initially financed and operated by a handful of founders or one individual.”
This definition leads us to one of the most important questions that every startup founder needs to ask: How are you going to fund the company in its initial stages? It is to be expected that, in the beginning, your startup’s expenses will exceed its income. You will need to develop and test your product, fund the initial production run, as well as pay for overheads such as your website developing and hosting, telephone bills, and other sundry costs.
Funding your startup.
Because your startup will not have accrued a credit rating of its own, you will not be able to approach a traditional bank for a business loan. Therefore, depending on the size of your startup, your funding options include everything from large-scale venture capital or angel funding down to microcredit. Because your startup is not yet turning a profit and it does not have much history, investing in a startup is considered high risk. Therefore, should you take out a loan to finance your business venture, you can expect a high interest rate to mitigate the risk that the lender faces when granting you a loan.
In a nutshell, venture capital is money that is provided by an investor to finance a new or developing business. Venture Capitalists are aware of the high risk involved when investing in a new business. Ergo, there is a real chance that the Venture Capitalist will lose his investment; therefore, he will try and mitigate the risk of losing money by evaluating the risk of your startup failing before he invests in your startup.
Bootstrapping or self-funding your startup.
The simple definition of bootstrapping your startup is to invest your own savings or retirement funds into getting your business up and running to the point where it starts to turn a profit. The obvious risk here is that if your business fails, you lose your savings.
There is no doubt that you can do with less funding than you initially thought. Therefore, once you have reworked your business plan and budget to trim off as much of the fat as possible, you might find that you will be able to apply for a type of microloan such as one of the car title loans San Diego.
Experience shows that opening your startup, albeit hazardous and lots of hard work, is well-worth the time and effort spent on making sure that your business is successful.