How To Build Any Business With Other People’s Money

Ever wanted to build a business, but worried you don’t have a pile of money set aside to get started? Are you trying to figure out how some people always seem to pull this off?

Turns out there’s no big secret to it, and no I’m not going to try and sell you anything. Getting other people to fund your business just requires a different approach than you may be used to. What do I know about it? Two friends and I bootstrapped a computer repair company at 15 using this method. I bootstrapped a web design business in the late 90s using the same method and did it again in the early 2000s.

Although I sometimes write using big words, I’m just a normal dude with a thesaurus! I swear, this stuff isn’t hard. I’m not saying it’s easy and I’m not saying you’re dumb for not figuring it out on your own, not at all. My dad and a friend’s dad taught me this method when I was a kid. Someone taught them, and so on, and so on.

OK. What’s the big reveal?

You need to find people with the problem you’re looking to solve and then convince them to pay you, in advance, to solve it.

Whoa, whoa, whoa. People will pay now for something they might not get until the future?

Of course they will. Ever hear of Kickstarter?

How about something not on the Internet. Ever hear of “new construction”? Want to be a housing developer? Go line up a bunch of people who want to live in the place you want to build, get them to pay in advance in exchange for guarantees of delivery time and how it will look and all that jazz, and get building. How do you think a lot of financial firms get off the ground? They get people’s money in exchange for promises that they know the market better than next person.

How can you apply this in real life? Here’s a checklist I wrote for a friend looking to start a software business. There’s some nerdy jargon but I’ve tried to keep it light. The fundamental principles apply to most other industries.

  1. Find your customers.
  2. Ask their problems related to your proposed solution. Don’t hint, just listen.
  3. If problems line up OR you pivot ASAP, goto 4. If not, go back to step 1.
  4. Repeat to get 7-10 potential customers.
  5. Ask your potential customers what they’d pay for a product of the specific scope that solves the problem. If it’s greater than $0 and the scope stays the same or shrinks, go to step 6. If it’s $0 or scope changes, go back to step 1. You can always pivot to solve that problem, but that also means going back to sep 1.
  6. Draw up wireframes for your Minimum Viable Product (MVP). Don’t overthink it. Don’t buy tools. Paper & pencil or Powerpoint. Squares, circles, rectangles, labels, text areas. REAL DESIGN COMES LATER.
  7. Post on Upwork: “Need MVP for (concept). Open to any tech stack. Musts: portfolio & references.” Post wireframes. Filter out anything terribly old (in tech years) or anything bleeding-edge. You don’t need Artificial Intelligence or Machine Learning on day 1. Do Skype interviews to get down to 3 to 4 Developers that you mesh with. Ask each of them for quotes.
  8. Price server hosting that meets MVP and initial user requirements, e.g. enough power for those 7-10 customers. If it gets up over $500/mo, stop & ask for help, because it shouldn’t get anywhere near that. Then figure out your total initial capital requirement with this simple math: (6 months hosting) + (6 months of Dev runway [rate * 240hrs]) + (Dev quote) = $X. “Dev runway” is additional work time, after you get your product into your customer’s hands, to go from that 1.0 version to a 2.0 version, based on the feedback from your initial customers.
  9. Ask prospects for a “YES!” to paying a pre-launch rate. You’re using this to fund software development. You should trust them enough, and vice-versa, to share that with them. This is the big sell. Give a deadline of double whatever your Developer estimates – so if she says 3 months, you say 6. Not to underpromise\overdeliver, but to account for any major roadblocks along the way. Set an expectation that prices will increase in the future, but only at version 2.0+ and that they’ll always get special treatment (and you need to mean that). What’s your pre-launch rate? Simple: it’s $X divided by the number of “YES!” responses.
  10. Deposit those checks and boom, you’re funded. Pay your developer. Get moving, and get something to your customers ASAP. Build from there.

 

And one other thing: in the software world, you can make a Minimum Viable Product of nearly anything for under $50k. At 10 “believers” that’s $5k each, assuming you’re willing to eat the 6-months hosting costs and throw some skin in the game to cover the first 6 months of Dev time to get to 2.0 (what I referred to as “Dev runway” earlier in the post).

Now that you have a plan, what next?

Go find your customers!

 

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