Episode 3: No Money

You have a great idea, but you don’t have much money, what do you do? That never happens, does it? Glenn shares a story of how one trio of entrepreneurs came up with a creative solution to the problem of no money that is sure to whet your appetite.

Transcript

Glenn Suart 0:00

It’s really a great story about, not only doing something with a little bit of money, but, being creative and trying to raise money to do stuff and then applying it where you needed it most. Because you can raise a lot of money but then too often people think they’ve got all this money, and they spend it in the wrong areas.

Doug Ross 0:33

Welcome to Conversations on Startups, a podcast brought to you by Douglas Ross, author of the book SPARK CLICK GO How to Bring your Creative Business Idea to Life, and Glenn Suart of Today’s Great Idea, a radio series featuring over 300 origin stories of businesses, brands and inventions that have changed the culture. Welcome to today’s conversation.

Glenn Suart 0:58

Today we’re going to / our theme is, geez, you have a great idea, but you don’t have much money, what do you do?

Doug Ross 1:05

That never happens, does it Glenn? This is a kind of a hypothetical that I guess. There’s a term bootstrapping, which basically means you, you know, you might take a little bit out of your own resources, whatever you can, put a little bit of capital in – maybe hit up your friends and family, that kind of thing, maybe an angel investor. And that’s really what’s happened in the company that I’m with now. They’ve created the actual company, they have share, so in exchange for these investments, people do get a share in this small enterprise that might be valuable sometime in future.

Glenn Suart 1:44

Which is good. You know, that’s a way of getting value for very little dollar. So of course you have to be careful you choose the right people and the right partners. If you choose somebody and they you give them shares, and then things don’t work out, those people still have those shares in equity and it just convolutes everything. And, I’ve got a situation like that right now growing in Toronto, not a good sign. Good opportunity, but they’ve already / some of the partners are splitting off. So not a good thing,

Doug Ross 2:11

Right, yeah, absolutely I agree. And I think with some of this early, early, small, little bits of money, what you don’t want to give up is control. Like don’t give them, you know, don’t give Uncle Fred a board seat because he gave you a check for 2500 bucks. Exactly. Right. That’s important. So a little bit of your own money, those things are all important. And then the question is really, what do you do with these initial very small amounts of money that you’re putting forward? How do you get going, because I don’t think it’s the case that people literally have no money. Have you heard from folks like that? You talk to a lot of people, Glenn.

Glenn Suart 2:45

I get a lot of people who have an idea, but don’t have a huge amount of money. And I caution them not to spend, don’t mortgage the house don’t do those kinds of crazy things. Because no matter what you think it’s going to cost, it’s probably gonna cost you five times as much. So, you have to be careful. And there’s lots of grant programs and local jurisdictions available to give you some money to do certain things. But you still got to apply. And there’s reasons you could do something, but I got a story for you. Okay, I’m loving it. One of the stories I do for Today’s Great Ideas and talking about people with some action, and there are these two guys, Brian and Joe, they have an idea, and they test it out. Three people show up and pay them some money, they think they’re onto something. So they hire this guy named Nathan and he helps them build this website, and they’re gonna go to the popular South by Southwest festival in Austin and they launched their website. How many bookings do you think they got? I’m not gonna tell who you the business is yet, but you’re probably gonna guess it in a second here. How many bookings do you think they got their first outing?

Doug Ross 3:50

They launched the website at South by Southwest. I’m guessing that’s a pretty well attended event 10,000 people maybe, but lots of things are happening there. If they did it early, maybe, maybe a hundred?

Glenn Suart 4:07

Ya, its a good guess. They got to two bookings.

Doug Ross 4:12

That’s not a good guess.

Glenn Suart 4:16

Well it’s better than a thousand! And so what happened with these guys is they ran out of money. They they put all their money, they bootstrapped it – they put this website together, and it didn’t work out. So their friends were hoping they had something else to do. But then they realized they got to be creative and how they create some / get some cash, so they needed to redo the website. So, they realize it was an election year in the US and they created boxes of cereals they sold for $40. You know this story?

Doug Ross 4:46

I do. Yeah, I’m somewhat familiar.

Glenn Suart 4:48

Oh, well, no. Okay. So they created Obama Oats and Captain McCain’s. And they made, after all was said and done, $30,000, which they promptly invested back in the original website.

Doug Ross 5:00

By selling cereal?

Glenn Suart 5:04

By selling cereal… But what was interesting is the cereal box initiative attracted the interest of a prominent accelerator group, an accelerater group helps to move the business forward and put some money in potentially. Well, that helped them with their funding, and today, as you probably know, Brian and Joe and the rest of their team are all billionaires, as it usually is with these kinds of stories. Yeah, we’re talking about Airbnb.

Bridget 5:30

You’re listening to conversations on startups with Doug and Glenn, thanks for joining us, let’s get back to the show.

Glenn Suart 5:39

Doug Ross 5:59

And here they spent it on improving the website

Glenn Suart 6:03

So that people would sign up and it worked like a charm after that.

Doug Ross 6:07

Like a lucky charm, maybe?

Glenn Suart 6:08

That could be it, yes. So we’re, you don’t have to have money, but you have to be creative. Doug, when it comes to finding money from investors or angel investors, do you have any thoughts on what you should do to do that? Because they’re hard to find?

Doug Ross 6:26

Well, yeah, I do. You know, and I think what it comes down to is, particularly with angels, it’s finding an angel that’s interested in your area. So if it’s software of a particular type, find somebody who’s maybe been funded by an angel that you’ve researched, and see if you can get an introduction, that would be one thing that I would say to do, because these investors tend to kind of pick a few areas where they invest. Some of these guys, maybe, you know, Brian Chesky, or one of these fellas from Airbnb has some extra cash to invest – I’m sure they do – and they tend to invest in areas that they know and like, and they may want to see what it is that you’re trying to bring to the world. So they’ll listen, you know, in the right way. And getting an introduction is probably the best thing that you could do to get an angel interested. But that assumes that you’ve got more than just an idea in your head, like, what do you think would appeal to an investor there? Well, what’s the minimum you’ve got to go to an angel investor with?

Glenn Suart 7:38

Well, it’s a good question. I think you need to no matter what you do, you don’t go ask for $1,000. But don’t go ask for 10 million either. You know, you have to choose a number that makes sense to your business, and the risk. But it comes back to three things. And even if you don’t know, any venture capitalists or angel investors, there’s a little secret out there. What do people like? Think of it this way. If I came to you, Doug, with an idea, there’s three things I think I should be delivering to you. One is the idea should be really interesting and good. And you’ve thought about the competition and all that kind of stuff. Obvious number one. But number two is I, I want you to know that I’ve actually sold some of these things already, whatever the widget is or the service, I’ve tested it out and I’m making money, because you as an investor want to know not only do I have an idea, but geez, I can sell. And the third thing is, not only can you sell, but the margins are good. If you you know, I have another client, a potential client here, they’ve got a great product. Licensable by a sports league. It awesome. The problem is their cost of goods sold, it currently is 80% of their retail price. Right. And that just doesn’t work. Because by the time you cover your cost your expenses, oh, you know, we’ll make it up on on volume. Well, that’s not going to work, you got to cover those operating expenses, you got to make sure your margins are realistic, and so they’re working on getting money to buy equipment to reduce that cost of goods sold. The problem is, the equipment they’re talking about is only going to reduce it to about 50% and that’s still not good enough in my mind.

Doug Ross 9:12

What do you think you need to have in terms of margins?

Glenn Suart 9:15

For this particular product, which is a, you know, a fan thing. I think they need to have their margins down to something in the order 30 to 40%. In the the rationale here is, yes, you can do a product like this and sell it for whatever it is on the internet. The problem is you got to get noticed. And so in this case, it would be better if they were selling it directly at sports events. But those guys of course, like any retailer, want a commission so you got to make sure your margins allow for the retailer commission which they haven’t done so far, and then allow for you to not only cover your costs – your cost of goods – but also make sure you got enough margin to cover your operating expenses. So those little things so if you can get a good idea really clear on paper, you can show you can sell it and people are buying it, and the margins are good, investors will come calling.

Doug Ross 10:09

Hey podcast listeners, we’re going to take a short break now. If you’re enjoying the show, feel free to invite your friends, remember to subscribe, and if you want to help spread the word, leave us a review on Apple podcasts or your favorite podcast app. Each episode of conversations on startups focuses on a single topic, if you want to comment on something you’ve heard on the podcast or suggest a topic for us to cover in a future episode, send an email to go@todaysgreatidea.com or douglas@sparksclick go.com. Glenn, and I appreciate you and hope you find our uncut and unrehearsed stories, perspectives and tips helpful. And speaking of helpful stuff, let’s pick up where we left off.

I like that, and I love the rule of thumb on margins and people, you know entrepreneurs, have they even thought of that? I think that is crucial, because it shows that they have looked at what the manufacturing costs are and they’ve got a reasonable assessment of it and they can kind of do that projection. The size of the market they’re going after, the number of customers they need. Is this thing, do they need a magic miracle in the middle of this thing to make this business make, you know, make sense. And it’s a simple calculation. So I really liked that you have the margin there. And the other thing you said about the idea, two things about that. Thomas Edison said, selling something is the mark of success of any sort of invention that he had come up with or innovation. So I like that, the customer buying it. But you took it one step further. And it means to you, if you put your investor hat on, the people associated with this company can sell, a critical skill. So, I think that’s a pretty good rule of rule of thumb that you’ve got there – those three things,

Glenn Suart 12:03

You know, it’s common sense, but common sense isn’t so common, obviously. Or you think, wow, everyone’s just gonna buy this. Well, no, not everyone is.

Doug Ross 12:12

I see that a lot in in decks for investors, things like: the market is $2 billion and we think we’ll have 10% of it year one. Really? What about the competitors, all these other things. So I like that point. I had another idea to share that people can use to raise the in addition to traction that you’re talking about. Yeah? That would be crowdfunding. So you can do that there are websites out there like Indiegogo, or Kickstarter, and you’re putting your idea out to people, you have to promote it on social media and other things like that, but you’re putting your idea out there and if people support your campaign, that’s your sort of proof of interest in your idea or product or service, whatever it might be. And in return for that you give them a little reward kind of thing if you make your campaign and then they are built-in buyers at the at the end of the day. So that’s something that you can do to raise some money. People may have been aware of that or not.

Glenn Suart 13:15

Yeah, and it’s a good thing to do, but again, like anything else, in the beginning of it’s easier, because there’s very few people. Now there’s lots of those campaigns. Oh, yeah. So just like approaching the investor, just like doing the crowdfunding – it takes work. Absolutely. So. But if you do it yourself, and you try to be careful, focus on those three things. You got something? You got a shot at it, at least.

Doug Ross 13:33

Yeah, I think that’s that’s absolutely right.

Din 13:40

You’re listening to conversations on startups with Doug and Glenn. Thanks for joining us. Let’s get back to the show.

Doug Ross 13:49

People say you know, I’d like to do this, but I have no money. There’s lots of things they can do. So for example, building a prototype, just taking it off of the napkin and actually building a prototype. A prototype might not take a lot of money. Doing something to progress, their idea forward, I think is good and then they’re going to build momentum that way, no matter how much money that they have. One other thing and you touched on this already, but I think it’s really important this, what not to do if you don’t have money. Right. And I happened to be kind of experiencing this with somebody who’s close to me right now and I’m seeing the tail end of this, and that is mortgaging your house. Okay, running up a credit card or two, in fact, in your example of Airbnb they did that they even talked about having 12 credit cards or something like that, not something that’s going to kill them. But if you mortgage your house, and it seems like a good idea, the tendency could be to even get more money out of your house and then if your business doesn’t work out, suddenly you don’t have any any equity in your home. And what I’m seeing in my own personal experience is a marriage breakdown. So I do not like at all any kind of major personal security

Glenn Suart 15:03

And let’s be clear, it’s not you and your marriage break out some other. It is. This happens – sometimes you have people who are so excited about their idea that they do that kind of stuff and it’s like, be realistic, and be careful. It’s easy to spend money -it’s easy. And you don’t want to be in a situation where you make bad decisions, and you lose your house or those kinds of things. More importantly, as you just touched on, it’s more than just the money. It’s the family. It’s your kids, it’s your parents. You don’t want to be in that situation.

Doug Ross 15:37

No, you know, you just risk too much. So yeah, no, I agree with that. And I think this idea you had, or from the story you shared, I need to get money, I had to be creative, which they did and they had something very specific that it was going to – it’s like a milestone in their business – a website that really attracts people and works was something they really wanted to work on with that money. Investors respond to that too. And they always ask you, Glen, I’m going to give you $10,000, what are you going to do with that? You better have a good, good answer, and a better be something that’s going to build momentum in your business?

Glenn Suart 16:13

100%. All right. So we could talk about this all day long.

Doug Ross 16:16

I love it.

Glenn Suart 16:17

I think it summarizes the whole thing. So, next week, we haven’t talked about it, what do you think would be something we should talk about next week that people / would be relevant for them?

Doug Ross 16:26

I don’t know. Let’s review here. We have talked about the importance of persistence, we have talked about the importance of luck and how do you make your own lock, and now we’ve talked about what do you do if you have little or no money, that sort of resourcefulness kind of piece? What would be good to expand on that?

Glenn Suart 16:50

Well, it just jumped into my brain right now. We talked about this before, but it seems to me partnering could be a great one. Because you can only do so much on your own, you’ve only got so many resources. But if you can find the right partner, he’s got a great set of complementary skill sets, that can be really fantastic to accelerate you both forward – or all of you forward. And so, talking about the good parts about finding the right partner, and of course also, you’re getting married, essentially. So you don’t want to jump into bed too early with the wrong person. That’s maybe would be a subject What do you think?

Doug Ross 17:28

I like it. I like the topic. I think it’s important Absolutely.

Conversations on Startups is a production of Glenn Suart and Douglas Ross. We hope you’re having fun listening, but mostly that you take action on your business idea. For more inspiration, visit our websites todaysgreatidea.com and sparkclickgo.com. Another episode of Conversations on Startups will drop soon or is already available to binge. Thanks for joining us and remember to subscribe and invite your friends. See you next time.

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