How to start a business with little or no money

So, you’ve got an idea and want to start a small business. Good for you! How are you going to find enough money to get it launched? The Small Business Association says starting a microbusiness costs about $3000 while the Ewing Marion Kauffman Foundation suggested that the number is around $30,000. If only 3% of people looking for substantial outside funds to launch their startup ever raise the capital, what do you do?” ( 2019) If you don’t have a bunch of cash lying around, what are you going to do to start the business of your dreams?

First things first…have you done the research to make sure that it is actually a good business?  A crazy number of business start-ups fail because they never start with the most important part of any business…the customer. If you have never asked the customer if you are a) providing a solution to a real issue that need solving and b) providing it in a dramatically better or cheaper or smaller way than the current solution and c) providing something that is not just a nice to have but a need to have – ie something they will actually be willing to pay for, you’re already behind the 8-ball.

Second, have you read up about the Lean Startup Methodology, a scientific method that helps entrepreneurs use information to steer through the startup process? It helps cut risk, but having you test and pivot, launch early and iterate often, and most importantly, talk to customers right from the start. The advantage to this method, is that it prevents you from spending a whack-load of money on something that isn’t going to fly, and prevents you from taking big steps in directions that are not optimal.  If you are going to be starting on a shoestring, at least make sure that you are spending what little money you have on the right things.

Let’s say you’ve worked through everything in the Lean Startup program and you’re good to go but you need some funding to really get going.. Now what?

There are a bunch of options for raising cash including:

1.    Self financing through savings, mortgaging your home or selling assets

2.    Friends & Family.

3.     Lines of credit.

4.     Business loans from a traditional lending institutions like a  bank or Credit Unions

5.     Business loans from an organization that focusses on small business or microbusiness loans. In Canada, the BDC (Business Development Bank of Canada) is a great place to start, as is the Canada Small Business Financing Program. Each provides funding for different purposes so reach out to both. Also, look at your local economic development organization like Community Futures Development Corporation (CFDCs) or Community Business Development Corporation (CBDCs). Don’t forget that if you are a woman or a member of a visible minority or any other identified group, there may be specific opportunities for funding targeted at that group.

6.    Government-sponsored start-up programs such as incubators, youth entrepreneur programs, etc. Look at the Self-Employment Program (for unemployed Employment Insurance eligible individuals) and the Seed Capital ConneXion Program for Young Entrepreneurs (for young entrepreneurs in Atlantic Canada). What’s great about many of these is that they offer not only resources, but contacts and mentoring too.

7.    Angel investors, Venture capitalists and other private sources. Many of the members of this group are much more likely to invest in a spin off of something that already exists or in a tested and true entrepreneur with a track record of building successful companies, but you never know.

8.     Government grant programs. These ones are super time consuming to find, to apply to and have the drawbacks of usually only funding certain activities (rather than unrestricted use) and taking a long time to be decided on, but they ARE available. Just be aware that if you are looking for grants in Canada, you need to use the appropriate terminology in investigating what’s available using terms like: small business financing, shared costs, subsidies, rebates, contributions, awards, tax credits (or tax rebates) or nonrepayable loans.

Finally, people starting new businesses assume they are going to need a LOT of money, and there is no question that some businesses do, but “one-third of Small Businesses Start with Less Than $5,000”, so it must be possible to do it without a lot. How do you do it? Don’t spend on things that don’t add value. Here are some ideas:

Don’t spend money on things that you just don’t need to have, like fancy logos, business cards, high end equipment (if lower end will be ok for a few years), web development agencies (build your own using free templates), accountants (buy some accounting software and DIY), etc.

Don’t spend money on fancy office space. Work from home or from a library or coffee shop or hotel lobby. Rent desks or meeting spaces as you need them from a shared workspace company.

Don’t incorporate early. Unless your business is one that comes with high risk of liability, don’t incorporate til you’re making enough money to justify the cost of doing so and the additional admin costs that come with it.

Don’t buy your staff new computers and other tech.  You can save thousands by buying older, refurbished ones.

Don’t attend a bunch of conferences and when you do go, don’t bring the whole team. Most of them don’t offer enough value for one person, nevermind multiple, so pick and choose carefully.

Don’t assume that freelancers or contract suppliers are not high quality. There are some excellent people especially in the graphics, and web development areas that are one wo/man operations and charge accordingly. Many people who come to the startup world from big business assume you need to pay a lot for quality.

On the same note, don’t assume that all of your freelancers need to live in the same big city as you do. There are excellent people on other sides of the world but also, really good people who live and work in small cities/towns in the same province/state. Their living costs are lower, so usually their prices are too.

We covered a lot of ground above, from making sure you start the right business, in the right way, to ways of raising money, to spending that money in the most efficient and effective way possible. A big thing that wasn’t mentioned above though, was that many people start businesses as a “side hustle”, using the stability and money coming in from their day job to finance all of the early stages of the startup, until the kinks are worked out and the business is ready to take to another level. Side hustles are great, low risk ways to make sure that you can put food on your table and keep the heat on while you are getting the business up and running and they certainly don’t mean you aren’t committed to going all in. They are practical and for many people, a really smart idea.

When you’ve researched and pivoted and tested and pivoted again, and you know that the customer wants your product/service and will pay for it, there will be plenty of opportunity to quit your job and take the leap.

Elisa Palter

About the Author

Elisa Palter

Elisa has co-founded and successfully exited 2 small businesses, written business cases for Harvard Business School, and was part of the team that founded a prestigious Liberal Arts College overseas. She assists select NFP organizations with their messaging and strategy, and coaches women who are looking to become entrepreneurs. Elisa is passionate about entrepreneurship and its ability to empower individuals, particularly women.

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