We have been walking through why Small Business fail and this is one of the big questions. In a technical context, I would argue that most startups are undercapitalized. They don't really have enough money to start their company and struggle before it can become profitable.
Why is that? So many people that I talk to don't have any financial background and have little interest in learning. This means that they are unable to create an estimate for the startup costs of their business. I normally run into them when they have an idea and ask me to work for a percentage of the company or for free/barter. I know that you are now thinking, "Is it that he has not been able to demonstrate a value proposition?" That may be true some percentage of the time, but I know many cases where they just did not have the money.
Let me give you an example. I met with a Woman who wanted to start an Alzheimer's Care Center. This center would be located on a farm so that they could grow their own food. This was to provide the residents with animal interaction and organic food. I asked if she had a property in mind. I was not sure that such a property would be available for sale and she might have to build. I also was unclear on the insurance and liability issues involved by mixing two industries as she wanted to. Her plan was to keep her full-time job and run this facility. She needed her job to pay bills while this facility was starting up. In the back of my head, I expected that this would take $5M - $10M to start.
Now I recognize that this is an extreme case, but I have a multitude of lower end examples. They ask for my help in developing and sometimes writing the business plan. When they find what I charge for this, they turn white and say thank you. I know that I am not unrealistic in what I am asking. They are asking for anything from 10 - 100 hours worth of work and want me to take less than $5/hour. If you are in that situation and cannot afford to get professional help in areas like bookkeeping and website development, then you need to consider whether you are doing the right thing.
So, if you don't know how to create a budget and estimates for a 2 - 3-year ramp-up phase of the business, then expect to hire an expert (like me) to do them. Unless you are my personal friend, don't expect my help for free. If you cannot afford that help, do something else until you can afford it.
Thanks, and have a great day!
Focal Point Business Coaching
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