A little [recent] history lesson for you, folks. Lean start-up is a term coined by one Eric Ries; engineer, entrepreneur, blogger and – we hope – all-round nice guy.
Ries’ concept has been giving lots of venture capitalists and entrepreneur types warm, fuzzy feelings of late. It centres on identifying where start-up reality and the business owner’s vision intercepts.
Often start-up companies waste valuable resources based on suck-it-and-see methodology. The cost of learning from mistakes can be significant – something a lean start-up wants to avoid.
Entrepreneurs often have lofty visions of what they want for their business. With the lean start-up concept they don’t have to give up that vision, they just use a better process to get there before the cash runs out.
There are loads of ways to fund a lean start-up. Here are just a few:
Bootstrapping means you fund your business venture out of your own pocket.
If you plan on bootstrapping, concentrate on cash flow. Start a business that requires small up-front capital, short payment terms, a short sales cycle and recurring revenue.
Bootstrapping may mean passing up on big dollar sales in favour of short and immediate sales; the biggies could take 12 months or longer to deliver.
If you have an existing business, you may consider a merchant cash advance. It’s repaid using a percentage of credit or debit card transactions and avoids the long and strict approval process of traditional bank loans.
The Bank of Family and Friends
Money coming from friends and family is one of the most common methods for starting a new business.
It’s been estimated that over three million companies launch annually thanks to the $100 billion investment made by family or friends.
In contrast, only $25 million comes from investors such as venture capitalists.
The average sum of funds obtained through friends and family is around $25,000-$30,000 per project, which works well for a lean start-up business. Data shows that 58% of the United States’ fastest growing companies were established with less than $20,000 starting capital.
Angel investors or venture capitalists
Lean start-ups focus on building products as minimally viable as possible, testing them on the market as soon as they can, and gaining a return on investment ASAP.
As a result of their inherent thriftiness, lean start-ups have been embraced by both private and professional investors.
Angel investors are private entrepreneurs that offer seed capital using their own funds. Meanwhile, venture capitalists are professional investors that use their firm’s money.
Lean start-up companies are the way of the future for the small business industry trying to succeed in a recessive economy. And, as luck would have it, there are many financing options available for the lean start-up entrepreneur.
Sara Mackey has worked in the field of small business financing for almost a decade. She works for Connexx.com, an authoritative guide in connecting business owners with the financing they need. Sara can be contacted through the contact page on the Connexx website.