Though the economy is showing signs of improvement, starting a business in today’s business landscape is still – and will always be – a risky venture. With 25 percent of all startups failing in the first year alone and only 50 percent still running after year four, investing in a business runs the same risk of success as flipping a coin – so why are entrepreneurs starting businesses without seeking funding from banks or investors?
The bank said NO
The first and perhaps most obvious scenario is one in which the banks have turned down the investment. Though the economy is looking up, solid business plans and low risk still run king in the world of banking. For new businesses looking to launch in the services arena, it can be particularly tough to prove a likely return on investment and likelihood of success, at times leaving investors to find alternate means to find funding.
Because of the risk associated with starting a new business, many entrepreneurs are dipping a toe into the waters before jumping off the pier. By starting small and launching a business on the side while still working full time at a day job, investors are able to test the market, gauge the initial reaction, and grow a customer base with minimal risk. If the business fails, it is unfortunate, but they still have their regular employment (and paycheck) to fall back on. If it succeeds and expands beyond the time that they can give outside of their regular work hours, then at that point they shift to their new business as a full-time endeavor.
They don’t need the money
This one must sound odd – what business doesn’t need money? Well, there are several ways that a business can launch and grow without any start-up capital. For example, if the entrepreneur is starting a services business, they might launch a website with low-cost hosting fees with pre-designed templates – a very minimal start-up fee that hardly requires an investment. Phone service, business cards – again, very minimal costs. So why take out a loan and pay interest if you don’t have to?
Service industry companies do it all the time – get clients, perform the work, and grow organically. In the products market, entrepreneurs start up and sell products before they are actually manufactured – as long as all the ducks are in a row, the customers will purchase the product which the new company then develops with the pre-paid finances. In a sense, it’s customer financing, which also allows the entrepreneur to secure initial feedback from first clients as well as to get a sense of the overall market and levels of receptiveness.
The bottom line is that there are many ways to start a new business without any initial investments from banks or investors. Though it may not be for everyone, it does work — and really, if you can avoid paying interest charges for years to come, why not do it? Entrepreneurs may come to the decision to start their business without banks or investors in different ways, but they tend to have one main reason in the front of their mind: save on expenses and loans in the long run.