Reading time – 3 minutes
Note – numbers are in dollars here, but it’s the principle that counts, it could be XOF/EUR/CAD etc.
There are many ways to fund your idea. You can:
- borrow money,
- apply to a venture firm,
- apply to a business incubator,
- and finally, reverse engineer your seed capital – if possible.
I prefer the last one because starting a company is, in part, done to reach financial independence:
- borrowing money makes you put up a counter party to go negative in hope that your business will pan out (positive),
- venture firms take a lot of time to due their diligence, and control of the company is often at stake
*Business incubators are not such a bad deal actually. I’ll come back to all this later on this year.
I prefer to reverse engineer the amount I need. I am in software development, so seed capital is relatively small (< 2-3,000 USD). Let’s assume I have 500$, an app to launch and I need 3,000$:
3000 = 3*10*100
This means I can make 3,000$ by selling 3 products at 10 dollars each to a 100 people.
3000 = 15*2*100
In other words, I need to sell 2 products at 15 dollars each to a 100 people. Or 15 products at 2 dollars to a 100 people.
Now that I have all those combinations in mind, I will take a week or two and observe people on the street, in the subway, on college campuses etc. And I focus on the items they have on them, as to answer the question: “what would a 100 people buy?”. By the end, I will usually have a list of 10-20 products, and I’ll log on Alibaba to source them.
Once I find a certified supplier, I email them for a quote. For example, my go-to products are iPhone earphones and chargers. They cost 80$ a pop, you can get an imitation as robust as the original for 10 cents to 2 dollars, and sell them for 10-15$ on craigslist and the likes. And the email will be something like this:
My name is Hacker x Hacker and I am the CEO of such and such. I was looking to source some iPhone earphones and chargers. I would like to get a quote for a sample of # of units to make it to 3000$ to be shipped to your location.
What about your methods of payment? Do you have PayPal? Western Union?
They will contact you relatively quickly, let them know that you sent the same message to other suppliers, take their whatsapp/WeChat, and negotiate until you agree on the price.
Be aware though that customs will cost a grip for small packages, so get them to send it as a gift or let them know that you have that to take into account when it comes to price. With 500$, I would put 300$ ish on earphones or chargers and the rest on customs fees.
As soon as the package lands, I’ll hit craigslist/kijiji and usually sell out in a week or two.
Stay prosperous family!
Next week, we tackling exit strategies and how to prepare for losses.