ok, good
firstly, let me assure you that if you stick to this thread and do everything that I tell you, then you are gonna be fine.
secondly, I'm glad that you are willing to explore a whole range of financing alternatives, such as debt and equity finance (i.e. selling a share in my business)....however, the next step is for you to realize that debt and equity are inappropriate instruments for you to finance your venture, and then you will need to listen and accept what
is an appropriate way to finance your venture (I've yet to cover this point).
Hence, the point of this post is for you to understand the term
appropriate finance, which is defined as finance that fits one's risk profile.
1) Underfunding: The first financing problem that you've noticed is called "underfunding". When people book a trip to Thailand, they always make sure they've got enough money to survive on once they get to Bangkok, because it is very painful to get off a plane and find that you only have $1 in your pocket left to finance 3 weeks of vacation.
With startups, however, people make this mistake all the time - as you were about to do before you did the right thing and got a second opinion. Internet startups cost a lot of money. Programming the beta release of a website is just a very small percentage of what's needed to finance the whole journey.
2) Risk management: The biggest amount of money that's needed is one that's used to
make up for mistakes. What happens if customers hate the beta release of the website and it has to get completely overhauled? What happens if the initial marketing campaign fails and there's a need for a second marketing campaign (which might also fail)?
For all of these contingencies, there's gotta be finance to make up for unforeseen setbacks. If the money is not available, then the venture can only sustain one or two blows. If likened to a prize fighter, a venture that get knocked on her ass in the first round after a couple of blows, is not strong enough to compete and battle on for the duration of 12 rounds. An entrepreneur has to start well toned ventures that can take many hits before going down.
How to manage risk: With some ventures (i.e. "build first, sell second" .coms) a lot of things can, will and do go wrong. It's called the
sales learning curve. Other ventures, are less risky. Very little can go wrong when my neighbor asks me to mow his lawn. It's a venture with a short (as opposed to long) sales learning curve. A very important skill is one of
correctly choosing the degree of riskiness that's acceptable for any particular entrepreneur. This is usually done very poorly. The way to manage risk is to make
appropriate opportunity selection decisions.
Example: If I have very limited driving experience, it would be suicidal for me to race at Indie 500. Being rational, I can identify that Indie 500 is an unsuitable competition for me to get involved with because it doesn't match with my
risk capacity. I'm not skilled, or financed well enough to take such chances. However, entrepreneurs almost always mismatch the kinds of opportunities they get them selves into, with their capacity for risk taking. Hence, we have 90% failure rates for small business.
Important point: As such, because I'm a bad driver, the optimum decision for me is to race my friends down the road on my scooter, as opposed to competing in the Indie. With my friends, I can WIN. With a more prestigious race, I'll LOSE. Since startups are not a popularity contest, it's much better for me to engage in things where I can win, as opposed to things where I'll probably lose. The most important skill for an entrepreneur is to select ventures where they are most likely to succeed, as opposed to ventures where other people are more likely to succeed.
Now....from your perspective; being a new entrant, not having adequate net worth to cover the sales learning curve, are you going to persist with starting a venture that has a long sales learning curve (i.e. a lot of things can go wrong), or will you try to shorten the sales curve and go for ventures with less uncertainty?
If you select correctly, and choose a venture that matches your risk profile - you won't have financing difficulties. If you choose poorly, you won't be able to finance your venture, because the kinds of finance it requires (i.e. equity finance) is not accessible to you, me, or anyone else with an inappropriate risk profile (i.e. lack of track record etc..)
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Originally Posted by quiteshirty.com
some really good points. and deffinately something i need to talk to the web developer about, what kind of service they offer for the future, and at what cost.
now im thinking, its going to be £3500 up front, £500 a month to advertise, and then after 6, or 12 months, another £5000 to redo it.
in the first year, that means a total of £14,500. (im going to say £15,000 to account for any errors)
and that is alot of money.
that means earning £40 a day (£1200 a month) from the website, just to break even during the first year. (im being generous in my sums, just incase!)
its possible. Difficult, but possible.
so would selling a share in my business for start up funds be a better idea?
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