How to Start a Business With No Money How to self-fund your startup with the right research, agile business model and a greater understanding of your market and product offering.
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SO, YOU WANT TO START A BUSINESS?
Let's assume that you have a great idea for a product or service that you would like to bring to market but don't have any money for it. Here is a step-by-step guide to get you from idea to launch with limited funds.
STEP ONE: MARKET RESEARCH
We need to determine whether your product or service will sell and the only way to determine that is to do some effective market research. This market research must not only convince you, but others as well, that your idea is workable, solves a problem and that there is a place for it.
How to research your market
The first thing you should do is prepare what I call a marketing map.
- You do this by writing your idea for the business down in the middle of a piece of paper and then drawing at least four arrows from your product and attaching names of potential customers or groups of customers at the end of each arrow.
- If you have more than four potential groups of customers, add additional arrows to your drawing. This exercise really focuses you on determining who your market is. Let's assume you are selling cricket equipment. Your four arrows could then be the general public, schools, other sporting goods shops and exports.
Once you have identified the various marketing sectors you can then prepare a market research action plan for each one and later you can specifically aim your marketing at each particular sector. This is a useful way of thinking through your business and you will gain a lot of information simply by doing this exercise.
Start your market research by:
- Writing down what you know about your product. Include industry, major players, special niche and so on.
- Google what you can and make notes. If your market is local or for a specific geographical area you can gather information from local associations, such as the chamber of commerce, and you can get out there and ask questions directly to your potential customers.
Market research is a very important part of your process — don't assume that you know everything about your market, the competition, or your potential customers. While you do your research you will realise that there are many gaps.
Your market research should focus on several key areas, with the following being the most important questions you want answered.
- What problem does this product solve?
- Why do my customers from the identified groupings need it?
- What differentiates my product from what is already available?
- What are the features of my product that make it special or unique and will make people want to buy it?
- Describe your customer — age, gender, education, income category, location, other factors about the customer.
- Do this for each grouping as per your marketing map.
- Identify them and gauge their specific strengths.
- Do a product comparison.
Critically, your competition has the jump on you as they have an established market. You must go out there and take market share from them. Most importantly, you must get the message out that there is a new game in town. That is not an easy thing to do without money.
- Can you do most of your marketing over social media?
- Do you need to establish a website?
- Can you market it through associations or professional networks?
- What about your brand? It may be worth joining the increasing number of small business associations who, for a membership fee, will assist you with your business.
- Check out all your options bearing in mind that you must advertise as effectively as possible with limited available funds.
The following represents a basic market research checklist, which should keep you focused and on track. You should keep in mind your customer groupings from your marketing map when drawing up the research.
MARKET RESEARCH: BASIC CHECKLIST
1. What industry body exists for your industry?
What information on your market is available from that body.
2. Is there available data on your industry?
Can you get this information from Stats SA, Local Government SA?
3. have you identified a gap or opportunity?
This needs to be confirmed by contacting potential customers and asking them directly about their need for the product.
4. Understand your customers:
This helps to decide on pricing and builds relationships, which increases sales and loyalty.
5. You need to profile your customers:
Describe your customer by characterising them, their spending habits, why they need the product, their location and behaviour.
6. What questions do we ask our customers?
The above should be set up in a scorecard.
7. Is your business location close to your market?
8. You must research suppliers for:
Quality, availability, price, terms, reliability.
Compare using these criteria.
9. Assess your competitors:
10. Social media
Social media is very powerful, and you can get a lot of information from searching the Internet.
STEP TWO: PRICING
The price at which you sell your product can be key to your success. Pricing is a very important part of your business.
The customer must be happy that he is getting value for the price he is paying, but also, that you, as the business owner, are making sufficient margin to cover your overheads.
- Therefore, the selling price of your product, less the cost price of that product, known as the gross profit or margin, must be large enough to cover your expenses such as advertising, rent, salaries, travelling expenses etc.
- If the margin is not high enough you will go out of business because you will have negative cash flow.
- Not only do you need to make sufficient margin, but your price has to be attractive to the customer and must be competitive.
What is the next step once you have determined that, according to your market research, your product solves a problem and is something your customers want? You need to determine how you are going to go about starting your business and an important question that needs to be answered is, "how much money do I need?'
What do you need the money for?
- Develop the product
- Source the product — perhaps imported goods
- Pay for infrastructure
- Operational costs.
This information goes hand in hand with determining your price point. The best way to determine how much you will need is to prepare a business plan.
STEP THREE: YOUR BUSINESS PLAN
Anyone who is serious about starting their own business needs a business plan. The business plan is the most informative document you will produce, and it will be the basis for everything you do within your business. I don't buy into the concept of one-page business plans.
The idea of a one-page business plan is to keep you agile — you need to look at your plan as a living, breathing document, and not as a huge file on a shelf gathering dust.
There is no business plan that ever met the market and didn't need to be adjusted. However, it's essential for you to do the work for a full business plan. You can then distill it into a one-pager to keep you on point — but keep going back to the full plan.
You need to thoroughly research and test the elements of your business, before embarking on operations. Your business plan must be robust enough to stand the rigours of testing.
You need to have:
- Researched your product
- Tested the market
- Calculated the cost of the required infrastructure
- Determined the price barriers
- Understood the profitability
- Calculated how much money you will need to start and run the business.
It's important to understand that a business plan is not prepared specifically to meet the needs of potential stakeholders such as lenders or investors, but is your guide and enabler. It should cover all the key parts of your business and should be amended and updated as the business grows, or circumstances change.
The simple checklist below will help you to ensure that you cover all the steps in building your business plan.
CHECKLIST FOR A BUSINESS PLAN
Business objectives and vision
Product or service
Location of business premises and market
The business vision
What product or service
To whom are you going to sell
What is the benefit for your customer?
What are your unique selling points/differentiators?
After sales service
Gross profit margin
Protection of your intellectual property or brand
Who is your target market?
Where is your target market?
Why do they want your product?
Who is the competition?
What is the price and is it affordable?
What quantities can be sold?
Is this a cash or credit market or both?
Infrastructure and staffing
Suppliers and their terms
Funding the business
Purchase of raw materials
Accounting and IT considerations
STEP FOUR: FUNDING
How do I go about finding money to start and run my business? You are satisfied you have a good product that will provide value for your customers.
Your best option would be to:
- Persuade a customer to give you an order on terms that are very favourable to you. If we refer to our marketing map, our product was cricket equipment and we had determined four customer groupings. One of the groupings was the schools market
- It would be an idea to approach them individually as to whether they would be prepared to buy from you. If you get a positive reaction, you could put orders together and offer them collectively or individually, a really good deal with perhaps some free articles, or major discounts in return for them paying you upfront or providing you with a deposit.
- You would then use the upfront payment or deposit to obtain the product and, if you have got your pricing right, cover your overheads for a period of time.
In summary, you need to get an order that will enable you to get the business off the ground and running.
Do this by:
- Approaching potential customers with your product.
- Potential customers could also become investors.
- Keep pressing — you are going to get many nos before anyone gives you a yes and you may only need one yes to get your business off the ground.
- What you want to do is structure the terms of the order in such a manner that you are able to buy or produce your product.
Other ideas would be to stay in your current employment and save until you have sufficient money to start the business. You could in the meantime still try to source orders and sell without owning physical infrastructure.
Try to get a supplier to give you extended terms for your first few orders to ensure you get your business started. Suppliers need to get their stock out there and may, under certain circumstances, be prepared to help.
Explore the possibility of crowdfunding, which allows you to take your product to the masses and if they like it, they will wish to invest. The biggest advantage of this is that you remain in control.
If you fail to raise finds via any of these methods, you can resort to more traditional methods.
Finding an investor
This assumes that you would be prepared to give away a share of your business in return for funding.
To find an investor, you need to do several things:
- Make a list of the players in your industry.
- Is your product in direct competition with theirs or could it complement their range?
- Approach each one of them to see if there is any interest in your product.
- Make a list of equity investors who may wish to invest in your business — these are players who will want to invest to make money from their investment and then exit your business.
- You will need formal documents, such as a business plan and the back-up detail for them to even consider investing. By giving away a share of your business, you will lose a certain degree of control and you may be required to do more formal and onerous reporting than you would have reasonably considered.
Finding a lender
Your other option would be to borrow money. This means that you will need to pay interest and that you will need to ensure your business can make the loan repayments.
To find a lender:
- Make a list of banks
- A list of government and quasi- government institutions
- A list of relatives and friends
- Note that you will need all the formal documentation referred to above
- Should you approach a relative or friend be aware that this can be dangerous to your relationship. Ensure that everything agreed to is in writing and that both parties are clear about expectations.
You can start a business with no capital. If you follow this framework, you can gain an enormous amount of knowledge about your product, your market and your competition, as well as what it will take to run a successful business.
As the business owner, you must realise that running a business is a marathon and not a sprint and you may suffer many hard knocks on your way to success.