ReWork

believing it and living it.

Outside money is Plan Z
    One of the first questions you’ll probably ask: Where’s the seed money going to come from? Far too often, people think the answer is to raise money from outsiders. If you’re building something like a factory or restaurant, then you may indeed need that outside cash. But a lot of companies don’t need expensive infrastructure—especially these days.
    We’re in a service economy now. Service businesses (e.g., consultants, software companies, wedding planners, graphic designers, and hundreds of others) don’t require much to get going. If you’re running a business like that, avoid outside funding.
    In fact, no matter what kind of business you’re starting, take on as little outside cash as you can. Spending other people’s money may sound great, but there’s a noose attached. Here’s why:
    You give up control . When you turn to outsiders for funding, you have to answer to them too. That’s fine at first, when everyone agrees. But what happens down the road? Are you starting your own business to take orders from someone else? Raise money and that’s what you’ll wind up doing.
    “Cashing out” begins to trump building a quality business . Investors want their money back—and quickly (usually three to five years). Long-term sustainability goes out the window when those involved only want to cash out as soon as they can.
    Spending other people’s money is addictive . There’s nothing easier than spending other people’s money. But then you run out and need to go back for more. And every time you go back, they take more of your company.
    It’s usually a bad deal . When you’re just beginning, you have no leverage. That’s a terrible time to enter into any financial transaction.
    Customers move down the totem pole . You wind up building what
investors
want instead of what
customers
want.
    Raising money is incredibly distracting . Seeking funding is difficult and draining. It takes months of pitch meetings, legal maneuvering, contracts, etc. That’s an enormous distraction when you should really be focused on building something great.
    It’s just not worth it. We hear over and over from business owners who have gone down this road and regret it. They usually give a variation on the investment-hangover story: First, you get that quick investment buzz. But then you start having meetings with your investors and/or board of directors, and you’re like, “Oh man, what have I gotten myself into?” Now someone else is calling the shots.
    Before you stick your head in that noose, look for another way.

You need less than you think
    Do you really need ten people or will two or three do for now?
    Do you really need $500,000 or is $50,000 (or $5,000) enough for now?
    Do you really need six months or can you make something in two?
    Do you really need a big office or can you share office space (or work from home) for a while?
    Do you really need a warehouse or can you rent a small storage space (or use your garage or basement) or outsource it completely?
    Do you really need to buy advertising and hire a PR firm or are there other ways to get noticed?
    Do you really need to build a factory or can you hire someone else to manufacture your products?
    Do you really need an accountant or can you use Quicken and do it yourself?
    Do you really need an IT department or can you outsource it?
    Do you really need a full-time support person or can you handle inquiries on your own?
    Do you really need to open a retail store or can you sell your product online?
    Do you really need fancy business cards, letterhead, and brochures or can you forego that stuff?
        You get the point. Maybe eventually you’ll need to go the bigger, more expensive route, but not right now.
    There’s nothing wrong with being frugal. When we launched our first product, we did it on the cheap. We didn’t get our own office; we shared space with another company. We didn’t get a bank of servers; we had only one. We didn’t advertise; we promoted by sharing our experiences online. We didn’t hire someone to answer customer e-mails; the company founder answered them himself. And everything worked out just fine.
    Great companies start in garages all the time. Yours can too.
     

Start a business, not a startup
    Ah, the startup. It’s a special breed of company that gets a lot of attention (especially in the tech world).
    The start up is a magical place. It’s a place where expenses