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How to start a multi-million dollar venture with $10,000

Date
The successful start-ups constantly test hypotheses.

The successful start-ups constantly test hypotheses. Photo: istock

Consider this: a young entrepreneur starts an online furniture retailer with $10,000. Another starts an online pharmacy with $20,000, and a construction franchise gets going with $25,000.

Welcome to the world of “lean entrepreneurship”, where Gen Y entrepreneurs start successful ventures on next to nothing. This is far from traditional “bootstrapping”, where entrepreneurs watch every cent to slash costs. This new model of lean start-up businesses requires new thinking.

Three of the four companies I interviewed for the annual BRW Fast Starters, a list of fast-growing start-up ventures, started on surprisingly low capital.

Fidarsi Furniture got going after founder Neil Singh doubled his $5000 bet on a casino roulette table, and Okme.com.au and Smith & Sons also took the lean approach. None of these companies wasted months writing business plans and persuading investors to provide large amounts of capital.

They just made it happen. Of course, some entrepreneurial ventures launch with low capital because that is all their founders have. Lean entrepreneurship is by necessity, rather than choice.

Fidarsi now has $2.4-million annual turnover and Okme’s revenue last financial year was $3.9 million. Not bad given they started on $10,000 and $20,000 respectively.

What’s your view?

• Do you expect to see more young entrepreneurs start ventures on next to no capital?

• Will it work? Is it becoming easier to get going on far less capital these days?

• What is the downside on starting with low start-up capital?

• What is the upside?

The BRW Fast Starters research provided several entrepreneurial insights. The first is that traditional business courses that teach entrepreneurs how to write detailed business plans, mostly to raise capital, are increasingly irrelevant.

I remember spending several months writing a beautiful business plan that was old as soon as it was finished. Business plans are important for ventures where there is a clearly established market and competitors, or for those that need significant capital, and a plan and valuation to show investors.

But many start-ups search for a business model, meaning elaborate plans are unnecessary and possibly do more harm than good. These entrepreneurs do not need to raise significant equity capital upfront, so marketing documents, such as detailed business plans, are often redundant.

More important is an ability to get to market quickly and adapt as circumstances change. The successful start-ups constantly test hypotheses; they launch a product or service, test it quickly with customers, refine it, change their business model if needed, and figure out what works.

Their goal is a repeatable, scalable business idea that can grow quickly.

Their ethos is: “The only way to know if this product works is to launch it and let the market tell me.” No amount of desktop research, market surveys and focus groups will tell them for sure if the product will work.

Another lesson is the ability to fund ventures from early cash flow. No venture will survive on $20,000 or $30,000 for long if cash arrives slowly. BRW Fast Starters entrepreneurs I interviewed focused on rapid growth in cash flow from day one, not months after meeting customers and building a reputation.

Perhaps the best lesson is that they had a go. I don’t know many older entrepreneurs who would start a venture on $10,000 and risk not earning a wage for several months. This model of lean entrepreneurship requires a different level of risk tolerance to traditional start-up thinking.

It has so much potential. Starting a venture with far less capital that in years past should mean more entrepreneurs getting to market faster, trying more things and being more innovative.

It could also mean young entrepreneurs focusing on several ideas at once, rather risking everything on one idea, and being able to recover faster from failure because fewer funds were invested upfront, and less funds are needed to start again.

Not having to raise equity capital from investors will also give these entrepreneurs more freedom to grow their venture, although it could also mean they lack important discipline that comes with having investors who require more structure and earlier returns.

Of course, not all ventures start with $10,000 and I’m sure many that do, fail. Being well capitalised at the start also has its benefits, especially if the venture needs to scale rapidly. And not everyone is able to live at home and run a venture, and start again with their parents’ support if things fail.

But one senses a critical barrier in starting small ventures – start-up capital is rapidly diminishing in some industries. And the concept of running start-up ventures lean and mean is reaching new extremes, thanks to the internet, online business models, and the ability to outsource work overseas.

It would be wrong to overstate this trend at this stage, based on interviews with a handful of young entrepreneurs. But it is worth noting that some entrepreneurs are rewriting the rules for start-up capital. Maybe you can join them in your next venture.

- The BRW Fast Starters issue is on sale now.

17 comments so far

  • I did the Government-sponsored NEIS program about 3 years ago. (3 months course, part-time, designed to help people start up their own small business).
    The essential element was a comprehensive business Plan, complete with Marketing forecasts, a 3-year budget, and a prediction of a profit with about 2 years.
    Would they have to change this scheme radically to cope with the new reality?

    Commenter
    Jos
    Location
    Lilydale
    Date and time
    April 30, 2012, 2:50PM
    • Jos,
      the article above lists the equivalent of lotto winners. What you learnt is a valid way to dramatically increase the probability of your business being a success. People have performed the "fly by the seat of your pants" business model for centuries. Some succeed, most fail. It does make for good reading.
      Meanwhile, if you put $1,000 into Apple stock 25 years ago you would be a multi-millionaire. You see how it works?
      Cheers
      Gilly

      Commenter
      Gilly
      Location
      Melbourne
      Date and time
      April 30, 2012, 4:18PM
    • I think the question is whether the NEIS program is really aimed at that reality. The original aim of the program was to help the long term unemployed start their own small businesses. I haven't read through the blurbs recently, but I am not sure that it has changed from that.

      In that environment - they are hardly going to encourage risk taking. Instead they will encourage planning, predictions and preparation.

      Most of the people coming through the program have no prior business experience and are just looking to get themselves set up with a reliable, viable income stream. They need the basics of marketing, bookkeeping, time management, sales, finances, legal and product planning & analysis. Sure, a comprehensive business plan is not actually what they personally need (they just need the thinking and planning skills it takes to get the info for one). But the government needs that info for funding and coaching purposes. Just like a bank lending someone money would want it.

      It would be good if there was an 'entrepreneurship stream' within the NEIS program. However it wouldn't be that helpful for someone setting up their own small lawnmowing business.

      Commenter
      RnR
      Date and time
      April 30, 2012, 5:26PM
    • Hi Jos, I also suffered through NEIS. Occasionally useless - the rest of the time annoying.

      The main contradiction - NEIS telling how I should do everything and run my business and also saying that I knew my market best!

      So the 'mentoring' and so on was all hopeless.

      Commenter
      Evan
      Location
      Sydney
      Date and time
      April 30, 2012, 6:21PM
  • I started my business with NO business plan about 8 years ago. With basic IT knowledge, I put together a few computers in the toilet of my apartment and started offering a service.

    I invested all returns into Google ads (for the first year) and now my business has a multi-million profit.

    Ok, I had no money to eat at times during the first year, but all that eventually paid off.. my starting capital was around $5000 and then maxed out every CC I had and those that I got later too..

    Commenter
    John
    Location
    Sydney
    Date and time
    April 30, 2012, 6:02PM
    • Hi Tony, I guess you know about Steve Blank and his blog. For those who don't he says that startups aren't companies with a business plan but are in search of a business plan who need to be able to 'pivot' (ie change their minds and adapt to what they find). One of his great quotes is, "No business plan survives the first contact with a customer".

      There is also a group studying startups called The StartUp Genome Project of something similar. Smart people with lots of data. Well worth checking out.

      Little capital isn't possible for some ventures. But for most it probably is.

      Commenter
      Evan
      Location
      Sydney
      Date and time
      April 30, 2012, 6:20PM
      • In addition to Steve Blank, there is also the hugely popular Lean Startup method promoted by Eric Ries in his book The Lean Startup. I believe this type of business development as the start of a much larger trend. It has already proved hugely successful overseas - with nothing stopping it from taking off here also.

        A friend of mine started MyNappies.com.au using this method of lean business development and it appears to have worked well for him. He was able to find product-market fit far quicker than he otherwise would have.

        Commenter
        ozbottle
        Location
        Brisbane
        Date and time
        May 01, 2012, 4:37PM
    • Good luck to all the aussie startups out there! My mobile app startup will launch in June and it cost me about $15K to build a website, iphone and android app.

      Commenter
      Loffer.com.au
      Date and time
      April 30, 2012, 8:21PM
      • How did you manage to build an iPhone app so cheaply (not to mention the other one)? The estimates that I've seen are $150 per hour for a developer and then there's the design cost.

        Commenter
        apublic2012
        Location
        Anon
        Date and time
        May 01, 2012, 10:32AM
      • @apublic2012
        I'm thinking of starting a mobile app development startup if my startup goes well so contact me if you have an idea (see my loffer website for contact details). The current site is just a front whilst the real one is being built. Come back in a couple of months once we've launched.

        Commenter
        loffer.com.au
        Date and time
        May 02, 2012, 12:03AM

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