November 8th 2019
Starting a business with limited capital requires a shift in mindset. Ordinarily, you might be asking, “Where is there a gap in the market — and how can I fill it?”
We would then consider the resources necessary to fill that gap and make our goal a reality. We’d write a business plan and present it to potential financiers with the promise of a return on investment.
If the financiers like us and like our idea, they provide us with the capital to start the business. If not, we are stuck.
Developing the alternative entrepreneurial mindset
1. Start with what you have
At the outset of looking to start a new business take stock of what you have. What are your skills, tangible resources? What experience, what knowledge?
Go beyond what comes to mind immediately and think a little more deeply about what you have at your disposal. Your responses will create a collection of artefacts which can be combined to create something interesting, novel and valuable in establishing a new business.
2. Experiment and adapt
With this new mindset, flexibility and adaptability are a competitive advantage. You succeed ultimately because you become overly fixated on a single goal but by being consistently responsive to changes in the environment.
Existing firms typically take longer to adapt than new firms because they have more incentive for things to remain the same. They have established routines and practices that reinforce the status quo.
New firms are not tied to the way things have always been done. Entrepreneurs can benefit from shifts in consumer preferences or shifts in technology or changing legislation by realigning their businesses to take advantage of such developments.
3. Take into account whom you know
What you have needs to be combined with whom you know in order that it has real power. Take stock of the relationships you have with others, map out your network of connections and consider how your connections could enable you to use what you have more effectively.
4. Invest what you can afford to lose
If you have only put in what you can afford to lose, you maintain flexibility in the business and minimise stress in managing it. If, though, you are willing only to invest when you expect that you will see a specific return, there is a strong chance that you may never take the leap and launch the business you always dreamed of.
The downside of the low-capital approach
There are, inevitably, downsides to taking the plunge and attempting to start a business with limited or even zero capital. Your approach may require early remedial action to overcome the negative consequences.
One major pitfall is the notion that the business and the owner have become inextricably linked: the owner is the business; the business is the owner. Under such circumstances, it becomes difficult to scale the business because the owner only has so many hours a day to keep selling their services. Furthermore, it becomes difficult to sell the business because it is worth very little without the owner. There could even be a risk of the owner becoming overworked and burning out.
To overcome these challenges, entrepreneurs should focus on codifying what they do and training others to be able to replicate it. They should also aim to systematise as much as possible in the business, creating processes to emulate the procedures that led to their success in the first place.
Types of new businesses to start with limited capital
The businesses that emerge when entrepreneurs have limited capital and adopt the alternative mindset for new venture creation typically have certain characteristics. They often fall into one or more of the following broad categories:
- Service businesses depend on the skill and time of the person starting the business. Such a person can make their skill available to others with relatively little up-front investment. To start a service business, you merely need the tools of your trade.
- A consultant may require a computer, a handyman some tools and a dressmaker a sewing machine. With these tools to hand, you can use your contacts to start selling your service.
- Performance-based businesses depend on the ability of entrepreneurs to get results and pull together people who can enhance what the business is striving to do.
The key is to start with what you currently have. What resources can you access? What skills can you leverage? Whom are you connected with?
You can start your dream business
Carefully examine the resources and relationships over which you have influence. Consider how you can put these to work quickly and effectively to create an offering that the market needs or wants. You can experiment using different combinations of resources to test how the market responds to different offerings and, over time, create an offering that genuinely is highly valuable to others.
It is empowering to focus on what you can do with what you have at your disposal. Adopting a positive mindset enables you to get into business in ways you simply may never have imagined.