Let’s just say hypothetically that Pure Adapt fell apart tomorrow and we lost everything and I was left with nothing. What would I do? First things first – if you know me, you know the absolute last thing I’d ever do is get a job. So how would I build a company?
Mark Cuban wrote a great post yesterday entitled The Best Equity is Sweat Equity:
There are only two reasonable sources of capital for startup entrepreneurs, your own pocket and your customers pockets. I personally would never even take money from a family member. Could you imagine the eternal grief and guilt from your mom, dad, uncle or aunt because you blew your nephews college money or the money for grandmas last vacation… I cant.
You shouldn’t have to take money from anyone. Businesses don’t have to start big. The best ones start small enough to suit the circumstances of their founders. I started MicroSolutions by getting an advance from my first customer of $500. The business didn’t grow quickly in the first couple years. We didn’t grow past 4 people in the first couple years, and we all worked dirt cheap.
So what’s wrong with that? It’s OK to start slow. It’s ok to grow slow. As much as you want to think that all things would change if you only had more cash available, they probably won’t.
The reality is that for most businesses, they don’t need more cash, they need more brains.
In this hypothetical example, we’re working under the assumption that I have little money to fund a business to start with, so I would choose number two: raising capital from my customers pockets. By far the best way to do this in my experiences is with web client work – SEO and design services. With client work you get money upfront, and you’re using sweat equity to build your company. So yea, you’re working a lot of hours but you’re getting capital immediately and you’re developing important business relationships for the future. I’d have enough to live and hopefully some left over.
You could stop there, but of course I wouldn’t. The problem with client services is that they don’t scale well…at all. Case in point: the recent Big SEO Firms Make Chicken Scratch post on SEO Book.
the 2006 numbers for the 20th [largest SEO] firm had like 5 million in revenues with something like 260 employees. Some companies may not want to be on such a list for competitive reasons, but the companies on the list are likely rounding up on the numbers and counting whatever they can as revenue. That comes out to revenues of less than $20,000 per employee, which stinks when you consider that if you deliver any real value to the clients and are growing your business some of that spend needs to go into doing market research, buying PPC ads, marketing your own consulting business, office related overhead, employee benefits, travel, taxes, creating custom software, buying links, etc.
It’s just too hard: you’re relying on finding people as multi-talented as yourself that are willing to work for you and can interact well with a team. In any service arena – law, accounting, personal training, etc – scaling is very difficult and a total pain in the ass in my opinion.
At this point I’d start taking money from my pocket to fund another new venture. More specifically, after my experience with Detailed Image, I’d start an e-commerce store. There’s just so much money and so much demand in e-commerce, and marketing is easy short term with eBay and PPC and long term with SEO, newsletters, blogs, etc. Even better, it’s extremely scalable. We know the owners of a niche e-commerce company in Albany that uses a crappy generic cart and does $4+ million in sales with a 750 sq-ft craphole warehouse and about 7 employees…most of which are packers/shippers that are cheap and relatively unskilled labor. I really think it’s hard not to get an e-commerce company to that point in ~5 years.
At that point (which is obviously ahead of where Pure Adapt is now), you again can keep things status quo or re-invest in some of the really cool and ballsy stuff. Maybe you take a shot with self-funding a cool web 2.0 software…or maybe you venture elsewhere into real estate…or into other technology (I know personally I’d love to prototype some engineering designs I had from college and try to get those products to market). Essentially this is what Mark Cuban did. Microsolutions was a service company that he sold for $$$ and then he took a ballsy chance with Broadcast.com which took off huge and turned him into the billionaire we know today.