When I started JibberJobber I learned a little about how venture capitalists and angel investors fund businesses. It was a fascinating journey into a world that seemed exciting and a little dirty/sleazy. I learned about the Four F’s… have you heard about these? These are the four sources of funding that an entrepreneur should look at before they go to a VC or an angel. They are:
I used two of these sources to fund the early days of my business. It was necessary, and I’m forever grateful to have had those sources of funding to help JibberJobber get onto it’s own two feet.
But it bugged me that that is what I needed to do. I had this novel idea that my business should have been funded by… get this… people paying for it! That’s what you might call “self-funding.” Many companies are not self-funding… they rely on continual investments to fund their payroll, rent, parties, etc. Companies like Amazon, who seems to own the retail world, did this for years.
Anything wrong with self-funding?
For most of you, starting your own business, getting funding from VCs or angels isn’t the right route, and you might not be able to tap into the Four F’s. So how do you fund your venture (aka, pay your rent and buy food) in the early days?
The answer sits in understanding the basic nature of your business, and whether you are offering products (that you are creating) or services.
JibberJobber is a product, which meant that we spent months to develop it before we went live. A book is a product… you spend months writing and editing and preparing for the publisher, and then you have one, or a thousand, or a million. Your job is to take this *thing* and market it.
A service might be something where you charge an hourly rate to do something, like an hour of consulting, a day of speaking, doing a haircut, writing a resume, mowing a lawn. Typically, you can start doing a service, for money, right now, today, without any investment. I have plenty of ideas of things you can do in exchange for money today.
Is one better than the other? A product can require a significant investment up-front, with the idea that you could sell it when it’s made, or you could sell the company if you prove it successful. Expect to continue to invest in R&D. The payout could be crazy. The failure could be ruinous.
A service might take no money to start, and you could get gobs of money per hour immediately (for example, consulting for $250/hour, or speaking for $5k an engagement). But you might not be able to sell your company later, no matter how good it performs, because for a while, YOUR ARE THE PRODUCT.
When I started JibberJobber I had illusions of grandeur about how much money I was going to make. All the while, I required investment from family and my 401k. It took a couple of years before my company was in the black. A COUPLE OF YEARS. That was not in the business plan!
The same month I started JibberJobber, I had a friend, also laid off, who started a business, but his was a consulting business. He was billing clients in week 1, and every week since then. Where I was burning through lots of money, he had very low overhead and was bringing in more per hour than he had ever done.
Who was the fool? Was it me, for not self-funding, or was it him, for going down a path that would not have a big payday (acquisition) in the end?
I’d say neither were the fool. But looking back on it now, I wish that I would have figured out how to consult for one to two hours per day back in the early days. That would have been a way to self-fund.
I know a guy who was starting a business while working at the grocery store at nights stocking shelves. Glamorous? Hardly. But it worked for him and his family. It was his way of finding funding for his venture.
Let’s wrap this up… funding a business can be hard. But there are many, many options. You don’t have to just hope to get on Shark Tank, or get laughed out of one hundred VC offices. Be creative. Many of the businesses that we enjoy today were started in someone’s basement, garage, or even bathtub (ecolabs). Without funding. With a dream and hope and elbow-grease.
Just don’t be too proud to consult for a couple of hours a day, or to work at the grocery store at night. Eventually, your own little business will be self-funding.