The Magic of “Other People’s Money”
“When a man says money can do anything, that settles it: He hasn’t got any.” – George Bernard Shaw
Have you ever had a great idea for a business but brushed it off as a crazy dream because you didn’t have enough money to get it started? Well, guess what? There’s a whole world of business opportunities you can tap into that, at a first glance, may appear to be out of reach for the entrepreneur who has little or no capital.
The principle — which can easily be applied to any small-business venture — is the same as the principle used to buy a house with “no money down.” It’s not that no money is changing hands. The seller isn’t giving away his property. It’s just that the funds are coming from a source other than the buyer’s pocket.
What I’m saying is this: Even though you may need a significant amount of capital to start your dream business, that money doesn’t have to come from you.
That doesn’t mean you can just run down to your local bank and ask them to cut you a check. In fact, unless you can fully collateralize the loan . . . and you have really strong credit . . . and you have a couple of years of profitable operating history behind you . . . you probably shouldn’t even try to get a business loan from your bank.
What am I suggesting you use? OPM (“other people’s money”). Private investors are probably the best source of small-business financing. And you would be surprised by how many people you know — even on a casual basis — who may have capital that they’d be willing to invest in your small-business venture. Better yet, you don’t necessarily need to know someone “rich” to get into a business that requires capital.
Let me tell you about one business that I successfully started without dipping into my pocket for one dime.
Some years ago, I was interested in getting into the beverage-vending business. I had even met with a few sales reps. However, their companies wanted buyers who had at least $10,000 in cash to invest . . . money I didn’t have.
Furthermore, the numbers didn’t add up. At $2,500 each, even with $10,000, that would give me only four machines. Even if each machine did $100 gross ($50 net) per week (which is what my research said an average vendor might make at a typical retail location), that would be only $200 a week profit!
Not nearly enough for me to be able to squeak out a living. Still . . . I really wanted to be in this business. So, I located some local suppliers and discovered that I could get a fully functional used soda machine from one of them for only $500 instead of the $2,500 that the manufacturers’ reps wanted for their new machines. This meant that for that same $10,000 investment I could have 20 soda machines and reasonably expect to net $1,000 a week.
I asked the supplier if they could provide any help with financing — and, to my surprise, they said they would finance two-thirds of the purchase if I made a cash down payment for one-third of the price. So, now all I needed was $3,333.
With my goal getting closer — and beginning to look as if it might actually happen — I did a little research about the vending business. Then I prepared a business plan that included financial projections and provided support for my numbers.
When you’re planning to approach private investors, I can’t put too much emphasis on how important it is to have paperwork that makes a good argument for why they should put their money into your business. You’re not going to be pitching to sophisticated venture capitalists, so don’t worry if it doesn’t look like a formal prospectus. But it must be logical and look presentable.
A well-prepared, professional proposal will make a good impression on any potential investor — even your uncle or your neighbor. And while he may not decide to invest with you this time, there’s a good chance, if you have represented yourself well, that he’ll want to go in with you on your next venture (although you may not need him at that point).
Be persistent. Keep on presenting your proposal to financing prospects and, eventually, you’ll find one who will want to help you out.
At the time in my life when I was trying to get my vending-machine business started, I was quite young — and far from what you would call a good salesman. I really didn’t know anyone with money. Still, I managed to come up with a list of possibilities.
One of the people I thought of was a former manager at a company I did a brief stint with after college. So I gave him a call. I told him I was working on a new business deal that I was really excited about — and that I was looking for a partner. I asked if he had a few minutes to hear about it, and he agreed to meet with me. After I showed him my paperwork, he immediately agreed, to my amazement, to loan me the remaining $3,333 that I needed to get started.
And that’s how I became the owner of a profitable business that consisted of 20 soda machines — without putting in a nickel of my own money!