Funding Your First Business

Hypothetically, let’s go back in time and say I’m about to graduate from college.  I know that in my heart I want to be an entrepreneur, but I’m concerned about how to fund a new company and have enough money to live. What do I do?

It’s a common position for potential business owners to be in.  I think a lot of very talented people that would start successful businesses get scared away by the financial uncertainty of starting their own business.

My advice – eliminate all of the uncertainty by using a job to fund yourself. Here’s what I would do if I was graduating today and starting out again from scratch tomorrow:

  1. Get a non-career job where you can work 30 – 40 hours/week and make enough money to live off of. It might not impress your parents, but that job bartending or waiting tables or being a barista or bank teller is going to afford you the opportunity to do what you truly want.
  2. Pick a potential business idea…then start a related service for under $100. Let’s say you’re like me and want to run lots of successful web apps.  Starting a web app from scratch and building it to a point where it brings in solid revenue is very difficult and many times doesn’t work out.  Instead, start a web design business first.  $100 gets you some business cards, a simple website, and a Skype phone number.  Throw and ad on Craigslist, work Twitter and Facebook, go to a few local networking events, and whatever else it takes to get your first clients for free.   For more ideas, check out my post How To Do Client Work Right that I wrote just after we got rid of the service side of our business.
  3. Use the remaining time to work on your “ideal” business. If you still want to build that web app, take advantage of all of the free time that you have to slowly-but-surely build it without the stress of needing it.  Build something that has true value to people, even if it takes a year or two to do it.  The more stress, the more you need a web app to succeed, the more likely you are to press and make drastic changes instead of being patient.  Great websites take years and years to build.
  4. Pump profits from your service into growing your “ideal” business. Since you are living off of your job, you can “reward” yourself by spending some or all of your service profit on growing the web app.

Here’s how your average week likely breaks down:  30 – 40 hours working, 15 – 25 hours on your service, and 5 – 10 hours on your ideal business.  ~60 hours is no joke, but it’s also not a bad deal for how much benefit you’re getting.

This is a very low risk, high reward path that gives you TONS of future options:

  • If things don’t take off, you can try again or get a career job.
  • If the service grows, you can quit your part time job or stop working on the web app.
  • If the web app grows, you can stop providing service or quit the part time job.
  • If they both grow and you can cover your living expenses, you can definitely quit the part time job!

There are several advantages of taking this approach:

  1. There’s no time limit. Totally flop after trying for 6 months?  Start over without any real penalty.  You still have your job so you can take a few weeks off from entrepreneurship and then get back into it when you’re ready.
  2. You’re financially stable. You don’t need to worry about owing creditors thousands of dollars because you’re advancing yourself cash to live while the business struggles.  By keeping your business money separate from your personal money, you really do eliminate any real financial risk.
  3. By bootstrapping, you learn the importance of every dollar. I love the fact that we’ve never taken outside financing.  We’re pretty minimal in our spending.  We value every single sale we make.  Would we be nearly as stingy if we had $1M from a VC to play with?  Probably not.  We also probably wouldn’t be nearly as efficient or nearly as successful.
  4. You keep your motivation. Nothing keeps you more motivated than doing a job that you don’t want to do every day!  That annoying customer who badgers you all night and never leaves a tip?  He’s the reason you work so hard after work.
  5. You’re learning constantly. No matter the business you work for, you can learn things.  What do they do that works?  What doesn’t?  How would you do it differently?  You’re getting paid to learn.  Those clients you work with are the same.  To do good work for them, you’ll have to work pretty hard to learn the intricacies of their businesses.
  6. You avoid living in a bubble. Running a business solo can be lonely.  I know.  Working a job gets you out of the house, gets you some social interaction, and builds some relationships.  Same goes for doing service work.

My business partners and I sort of did these things, mostly by accident.  I got a job with the intention of funding SportsLizard, but it was a career job and became too conflicting.  Mike and George worked part-time jobs to bridge the gap as they got their start.  Greg was still going for his MBA while he was starting out.  I did SEO service work to keep myself afloat while I tried to grow my websites, which eventually led me to my current partners.  George and Greg did physical detailing to fund Detailed Image.  All along the way, the knowledge we learned from all of those experiences has cumulatively helped us in every aspect of our business.

12 comments on Funding Your First Business

  1. nethy says:

    Great post Adam,

    I think a good idea for most people is avoiding the California-startup mindset. They make the media and blog like mad, so it seems like a Goliath, but they’re actually miniscule. Then, VC’s aren’t usually in the business of handing out checks to 22 year olds operating out of a basement. I’m sure it happens to a certain extent, but the majority of VC money goes towards things like researching new drugs. When they do fund web apps, it’s mostly already popular web apps.

    On the other hand, walk down any main street, not-so-main street, industrial complex, shopping centre, commercial centre, etc. These are the silent majority. Have a souvlaki. Buy some paint. These places are all full of businesses. They were all started by someone. A lot of them weren’t flush when they did it. Probably none of them ever got any VC money, never mind starting with it.

    Last week we put our exchange student on a plane back to Europe. She’d been here for a year. She’s starting a degree soon. She’s 19. While she was here, she developed an interest in food. She wants to start a cafe and is wondering what to study. My girlfriend’s sister (her ‘host-aunt’) was recommending doing some small business course. Cooking school or hotel management or something also seemed rational. Now I can’t discount going and acquiring some awesome cooking skills. That won’t go astray in a cafe. But I can discount a small business course (I think). Bookkeeping or registering a business are hurdles you’ll get over.

    The best advice I could think of was work in a cafe or start a cafe or (preferably) both. In fact, start one at University. When you’re at University you are usually spending more then you make. A lot more considering tuition. How much would it take to start a modest University cafe? 12 month’s rent for a stall or little shop space. Some equipment.

    Get your parents to ‘invest’. If nothing else, a year running a business is great experience. At least equivalent to an honours year. Get 2 or three partners. Open for 5-6 hour per day. It could be your part time job. Treat it like an internship. Try to break even. If you make a profit, great. Study science or arts or cooking or business management. Whatever you want. Learn to operate a cafe by doing it. Graduate with a degree and three years experience running a cafe. The difference between that and a six months business management course.

    Ironically, I got thinking this way by reading Paul Graham. A proponent of the California startup thing.

    • Adam McFarland says:

      Awesome story Nethy. I agree with you completely – the way that she’ll learn most about what it takes to run a cafe is to work at one and then start one on her own. She might not get paid much while working at one, but if she really takes an interest in learning about how the business runs, it’ll be a paid lesson in running a successful business.

      Mark Cuban has a very similar post:

      Whatever your hobbies, interests, passions are. Find the one you love the best and GET A JOB in the business that supports it.

      It could be as a clerk, a salesperson, whatever you can find. You have to start learning the business somewhere. Instead of paying to go to school somewhere, you are getting paid to learn. It may not be the perfect job, but there is no perfect path to getting rich.

      Before or after work and on weekends, every single day, read everything there is to read about the business. Go to trade shows, read the trade magazines, spend a lot of time talking to the people you do business with about their business and the people they buy from.

      Also, as you mentioned in the beginning, it’s important to note that almost all small businesses are funded by personal savings, credit cards, family loans, or some combination of the three. It’s not glamorous, but it works.

  2. Dale says:

    Adam, this is the first time I’ve seen an attempt at a career path in entrepreneurship. It’s a great contrarian view to the typical “go to school, get a job, and let the company take care of you” that we’re all taught in school.

    • Adam McFarland says:

      Thanks Dale. I also think that if students say that they want to start a business, the first thing that they’re told is to work a long corporate career in their industry and then someday when they have enough money and experience they’ll be able to start a company. I think that couldn’t be more wrong. You never know what you’re really getting into unless you jump right in. And I feel like when you’re 15-20 years into a career you lose a lot of the flexibility you had as a college student that makes self-funded entrepreneurship possible (living on very little, learning and applying new things fast, etc).

      • Dale says:

        Or on the other hand, they go out and try to get 100’s to millions of dollars in funding and mortgage all their life possessions for one shot…

  3. […] Adam McFarland, is the 26 year old founder of Pure Adapt, a company that designs, develops, markets, and operates e-commerce stores and other websites in an array of industries. Here’s his advice for funding your first business: […]

  4. Brad says:

    Some of this article seems familiar 😉

  5. Adam McFarland says:

    Some comments over on the Brazen Careerist too…

  6. Oke says:

    “Nothing keeps you more motivated than doing a job that you don’t want to do every day!”

    This is another great quote by you. I laughed my ass off, because I’m going through this right now. It is a great feeling going home, knowing that the thing we are passionate about is done with the want to and goal to leave that job behind.

  7. […] final thoughts on funding your first business and generating your first cash […]

  8. […] always suggested getting a non career job to fund your first business.  I usually suggested something simple that can be done on off hours, like bartending. However, […]

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