5 Steps to Raise Startup and Expansion Capital
These universal steps make capital goals reachable for an entrepreneur in any industry.
By Jonathan Long •
Opinions expressed by Entrepreneur contributors are their own.
What is the one thing that stops many potential entrepreneurs from chasing their dreams?
Money.
Not everyone can secure a business loan -- or wants to put his or her personal assets on the line -- and the majority of startups never receive a dime from VCs.
Dreams die daily because of a lack of funds. I was recently speaking to a friend of mine who wants to open her own hair salon. She is great at what she does -- and with her experience I am certain she will be a very successful entrepreneur. So, what is stopping her? About $20,000.
She talked about bringing on an investor and I quickly shot that idea down. Within 10 minutes I laid out a plan to help her raise the $20,000 she would need to start her business. These are the steps I outlined for her, which can easily be applied to any business idea -- they are universal.
1. Identify what value you can bring to the table.
My friend, Sarah, is extremely talented. She knows hair. Her portfolio is massive and includes work on many high profile movies and modeling projects. We quickly identified what value she can bring: knowledge and expertise in the hair industry.
Sarah is accomplished in the industry and her biggest value is everything that she has learned along the way. Most entrepreneurs want to start a business in an industry they have success in, so chances are that your expertise and personal knowledge will always be your biggest asset.
Related: A Foolproof Guide to Raising Capital for Startups
2. Identify who you can provide this value to.
Once you establish what value you can provide you need to identify who is the ideal target to "sell" this value to. After a few minutes of brainstorming Sarah and I found a small niche that she could target: people that are about to enroll in hair and beauty school.
Within a few minutes I learned that the average cost to attend one of these schools in Sarah's area was $17,000. Honestly, that's a lot more than I expected. If someone was willing to spend that kind of money on hair and beauty school, surely they would be willing to spend a few hundred dollars to be fully prepared when class begins.
3. Determine how many sales you need.
Our magic number became $250. Even though the school cost was $17,000, the majority of students aren't going to have a pile of disposable income to throw around. If someone was willing to spend money on formal education, they should be willing to spend a couple hundred dollars on prep.
In order to raise the $20,000 needed to start her own salon, Sarah would need to sell 80 of these packages. When you break your capital raise goal down like this it appears to be much more attainable.
What way sounds like an easier way to make $1 million:
- Generate $1,000,000 worth of sales
- Sell a $500 product or service to 2,000 customers
When you break it down, the goal becomes easier to digest and reachable.
Related: 5 Modern Truths About Raising Early-Stage Capital
4. Put together an attractive service or package.
High school students take the SAT or ACT in order to get into college and there are several pre-test courses and training that they purchase in order to go in fully prepared. So, why wouldn't someone about to spend $17,000 on hair and beauty school want to go in fully prepared as well?
So, Sarah put together a weekend "crash course" program designed to help students prepare for school. She designed a two-day course that teaches some of the basics so the students don't go into day-one blind. This prep will help her students start their hair and beauty education with a slight upper hand. The confidence boost it will provide alone justifies the cost.
Find a way to deliver exceptional value -- it will make the sale much easier.
Related: How To Raise Capital For Your Mobile App Startup
5. Hustle to get those sales (and startup capital).
When we broke down her startup capital needs and then created a plan to raise those funds we determined that Sarah needed to attract 80 students that would pay her $250 for her course. Four weekend courses with 20 students in each class would allow her to raise the $20,000 she needs to start her own salon in just a month.
No bank loans and no investors. No business debt and Sarah gets to keep 100% of her business. All it took was a few minutes and some creative brainstorming.
Lack of startup funds is the number one obstacle that prevents entrepreneurs from chasing their dreams -- but it doesn't have to be.
