16 TPE Part IV - Chapter 8-converted

The main ideas from this information are: - People often try to have more money in order to do what they want and be happier. - It is important to have a clear plan and take action. - Money is an important aspect of entrepreneurship, and its value depends on the amount we have. - Lack of money can be an opportunity to be more focused and innovative. - The story of Julie Anderson, who started a costume rental business with no money. - Starting a business without money is possible, but it requires resourcefulness and problem-solving. - Borrowing money should be done wisely and used to directly grow the business. - Banks are not the best source of funding for startups. - The best source of funding is yourself, and there are various ways to access money, such as selling items on eBay or refinancing assets like a house or car. - Retirement and college savings accounts can also be used for funding, but with potential penalties. - It is important to be resourceful and think creatively Chapter 8, Clean Up on Three Sheets. Often people attempt to live their lives backwards. They try to have more things or more money in order to do more of what they want so they will be happier. Anonymous. The planning is over and you have taken action. Your head and your heart are readier than ever. You began this process by defining your beliefs and getting the right entrepreneurial mindset. Then you identified your finish line. You created a prosperity plan that gives you goose bumps. You're armed with a quarterly plan and the daily metrics which will keep you moving in the right direction. Most importantly you have backed your beliefs and focus with committed actions. The final piece of the puzzle is money. When we have lots of money our appreciation for it naturally goes the way of the full role of TP. We wipe our ass with no concern for the next time we need it. When we lack money our appreciation for it is the same as the last square of TP. Those few dollar bills only go so far and we have a very acute sense of how we need to manage them. Exploit your lack of money mastering cleaning up on just a few squares. Then when your cash reserves start growing store it away and continue to live off the few necessary squares. Go into every situation with the minimum amount of cash required to properly navigate it and you will start building a healthy discipline for accumulating cash. Lack of money requires a focus that you don't need when you have funding. When you don't have money your thoughts are focused on ways you can navigate around the perceived obstacle. If you properly apply your focus you can use the lack of money as an opportunity to ask better questions. You will not focus on the lack but instead focus forward on exploiting the resources you do have. You'll become more productive, you will innovate, and you will prosper. Necessity truly is the mother of invention. Plenty of something for a whole lot of nothing. In September of 1992 Julie Anderson, an unemployed fine art photographer, got a bright idea. Why not open a costume rental shop and make some money on Halloween? Julie loved making costumes and had a few hanging around from photo shoots. There was just one problem. Julie had no money for retail space. In fact, she was just about broke. Julie made a deal with a swank hotel to rent a room for just one month in exchange for promoting the hotel's Halloween bash. Since she didn't want people to know she only had a few customers she put signs up that read, By Appointment Only and ran an ad in the local weekly. Whenever potential customers called and asked if she had a specific costume, she would ask for their size and then say, Yes, I have that, but it's rented and won't be back until tomorrow. Yep, you got it. Julie made each costume to order staying up all night to finish them before her customers came in for their appointments. She scoured thrift stores, dollar stores, and garage sales for fabric and supplies. With barely any money left over to eat, her dinner every night was the free Nacho Buffet at the hotel's bar during happy hour. By the first of November, Julie had dozens of costumes and a nice stash of cash. Since she loved creating costumes, Julie decided to open shop year-round and launch the Costume Salon. Nine years later, she sold her local business, literally thousands of hand-sewn costumes made from found or discontinued materials, and opened an online costume rental business, www.costumesalon.com. Today, Julie rents high-end costumes to customers all over the world, designs costumes for films and big-budget plays and musicals, and is regularly featured in magazines such as American Doll and Italian Vogue. And you know what? Julie still uses the same business model. If she doesn't have it, she makes it, often using discontinued or gently used materials. Julie Anderson is a toilet paper entrepreneur. Anything for nothing. If I get one more stinking, whining email about how impossible it is to start a business without any money, I'm going to explode. Money, if used wisely, will let you start faster. But lack of money will not prevent you from starting. If you have the ability to send me an email, you clearly have access to a computer or cell phone. More than enough tools to get started. So if you don't have money, stop making excuses and find a way. On our website and throughout the printed book, I shared some of my tricks to help you launch and grow your business for little or no cost. There are a million more. But you're probably thinking free office stuff is all well and good, but I can't start my business until I have enough money to bring my product to market. That is a crock of shiat, if you ask me. While I agree that you may not be able to produce a fully realized version of your product design at this very moment, you might be able to introduce a toned-down version. Maybe you can start with one piece of it. Or maybe you can use something else that already exists. Or maybe make a simple modification. Or how about performing the service behind the product or for a similar product. If you still believe you need money, then follow the path of the part-time entrepreneur. Work a job during the day and slowly build your entrepreneurial endeavor at night or the other way around. There's always a way to achieve and to do it with little or no money. You just need to believe you can, focus on problem-solving, and then do it. If at this point you are still saying you can't launch a company without money, give up. You're just too stubborn and stuck in your limiting beliefs. Until you dissolve the wall, you will not successfully launch anything. Sometimes you need to borrow. Bootstrapping is the hardest road to travel, but it greatly increases your chance of arriving at the castle I am a huge believer in surviving on your own, if you can. It forces excellent discipline, and the rewards are greater, but that doesn't mean you should be an idiot. Starting a company takes guts, persistence, tenacity, and passion, but stupidity is not part of the formula. You need to have some money to live. Your job is not to prove to the world you can make it on your own by becoming homeless. There are times when you might need to borrow cash. There may be other times you have to work at the Burger King just to keep cash coming in, but every other waking hour must be devoted to launching your company, paying back your debts, and driving towards success. Plus, you get to eat all those free french fries. Yummy! There are lots of do's and don'ts to debt financing, otherwise known as borrowing. The traditional methods don't work well. Surprised? I didn't think so. Bankers are anchors. So you need to borrow a full roll of money rather than root through the proverbial wastebasket of non-traditional resources. Fine, I'm cool with that, but if you're going to borrow, you better ensure you use the cash to directly grow your fledgling business's bottom line. Don't use it for anything else. Until you have a belief system that maximizes what you have, take three sheets of TP here, you shouldn't borrow a penny. Only when you are able to take a dollar and stretch it a mile should you take money to fuel your growth. The first source of money entrepreneurs traditionally think of is bankers. That's the old-school approach and it's probably the last place you should go. Bankers aren't bad people, they just don't easily understand non-traditional business plans and are risk-averse by nature. Banks are looking for simple, low-risk investments that offer consistent return. They like to get involved with stuff they thoroughly understand and are highly confident will guarantee them a return. A new startup rarely fits the bill. If you do end up going to a bank, go with a local, small one. They're typically far more aggressive. That's funny, aggressive banker, right. Know this, bankers are anchors. Many entrepreneurs believe they can only get funding from banks, so when the bank rejects them or gives them unreasonable, shitty terms, these entrepreneurs believe that's the end. Bankers keep entrepreneurs anchored, unable to move forward to plan B. So if you shouldn't go to the banks, where should you go? The best sources of funding are people who know you and know your capability. Who knows you better than you? Nobody. So the first place to borrow money is from you. Now, don't cut me off here and say you don't have any money. You might have more than you think. Consider these options. eBay. Look through the attic, garage, and every crevice of your home. From baseball cards to old toys to your collection of slightly soiled porn mags, somebody wants your crap and will pay good money for it. See what you've got, post it on eBay, and get some money in the door. As the old saying kinda goes, one man's shit is another man's non-shit. House. If you own a house, consider refinancing and pulling the equity out. If historical trends stay true, your house will continue to increase in value over the long term. Just make sure you can afford the new payment and avoid frequent refinancing, which may cost you dearly in the long run. Car. But what if you don't own a house? You may have a car. Did you know you could refinance your car? You can, if you own it. Just be careful, since cars decrease in value over time, borrowing against them is a financial risk. 401k and IRA. While 401k, IRA, and other investment account money is intended for retirement, there are situations in which you can borrow from yourself penalty-free. Of course, you can just take the money out directly, too, but be aware that you might take a government-induced penalty and a tax beatdown. 529 plan. The 529 plans are intended for college savings, but can get freed up for other purposes, too. If you have one, see if you can get the funds out penalty-free. What better education can you get than entrepreneurialism anyway? Trade a paperclip for a house. If you couldn't squeeze enough money out of yourself, it's time to start looking for alternatives. Most will advise you to continue down the funding path of the four F's. Founder, Family, Friends, and Fools. Per usual, the pundits are wrong. You are the first F, Miss or Mr. Business Founder, and you can still get cash or supplies on your own accord. Before you run out asking for funds from other sources, try trading up. Kyle McDonald proved to the world that he could trade one red paperclip for a house. At the end of one year, he not only had his house, but a lot of buzz and a book deal. The story of one red paperclip is true, amazing, and a real eye-opener. Kyle started off with a couple basic things, a computer and a paperclip, a simple four-sentence prosperity plan, and a variant of a quarterly plan, and then backed them up with immediate action. Four simple sentences placed on Craigslist, and Kyle is off to the races. What he accomplished was nothing short of amazing. His Craigslist ad stated, this one red paperclip is currently sitting on my desk next to my computer. I want to trade this one red paperclip with you for something bigger or better, maybe a pen, a spoon, or perhaps a boot. If you promise to make the trade, I will come and visit you wherever you are to trade. I'm going to make a continuous chain of up-trades until I get a house. With that, Kyle was off to the races. All he needed was his natural talent, a computer, a paperclip, and his time. The red paperclip was traded for a pen, which after a few trades became a toolbox, and then a generator, which went on to become a snowmobile, and then a box truck, and after a few more trades became an acting role in a movie, which resulted in his destiny. Fourteen trades, and one year later, Kyle moved into his new house in the town of Kipling, Saskatchewan, in Canada. Think about what you have to offer that is of value to someone else. Can you provide training, service, or stuff to someone in exchange for something you need? Working with limited resources requires discipline and a commitment, and it's clearly a harder path than someone handing you money, but the results can be phenomenal. Shoot, if a paperclip can get you a house, just imagine what you could get for this CD set you're listening to. Maybe you could have your own island. Funds from the folks. After squeezing money out of yourself, your belongings, and your skills, it may be necessary to tap the second F, family. It's time to raise some cash from mom, dad, and your wealthy uncle, Heckelbert. When it comes to borrowing family money, there are inherent pros and cons. The upside is that the agreement will probably be quick, and will not require lawyers or personal guarantees. The downside is summed up in the word probably. Accepting a loan from a family member is risky because if your business goes sour, things can get ugly fast and last an eternity. Think about all those Thanksgiving dinners where your uncle Heckelbert recounts the story of how you screwed him, throws a turkey leg at you, and storms out. Nobody needs that nobody. If you're going to ask the folks for some funding, there are a few things to consider. A family loan is just like any other loan, and you need to pay the money back. Unless, of course, your folks just write you a check, pat you on the back, and tell you to take it. In that case, give them a big hug and kiss, and get your ass to work. But chances are your family needs money to live too. So if you agree to a loan, use this little trick to pay it back and sustain a family friend. Borrow more than you need. For example, if you need $5,000, ask for $8,000, and use the extra $3,000 to start the payback process on time, or even early. This affords you more time to get on your feet and generate revenue. At the same time, it shows your family your commitment to paying the loan back, and keeps you in their good graces. As you get in the payback rhythm, it will become habitual and easier to pay, and you won't feel like a schmuck. Sometimes even the best plans don't pan out. If you can't pay back your loan on time, or are having any difficulty whatsoever, tell your family lenders as far in advance as possible, and work out a new plan to pay the money back. Communication is the key, and it could save you Thanksgiving. Vendors have your money, borrow it back, plus other options. Maybe the folks aren't an option, and you don't have a penny to your name. There are still plenty of options to consider before you start selling off pieces of your budding company. If you are doing at least a little bit of business, you have even more options. Vendor loans. Contact vendors, and tactfully but passionately tell them your vision, goals, and financial needs. They will have a good understanding of your market, and a great understanding of you, and may want to invest in your growth. If they consider you a good client, your vendors may give you very favorable terms, loans, or an equity deal. Chances are, if they help you out financially, they're also going to make sure that you are a priority on their list. That can help you. As your business grows, your need for their products and services will increase as well. And you're not about to switch vendors after all they've done for you, are you? Figure out how it can be a win-win and present your case. At the very least, you may be able to get better payment terms on existing orders. Client loans. Clients are also a good source of funding, but asking them for money is a little risky. Customers may fear that you are in financial trouble, and you may lose them as clients. Pre-paying clients. A great way to get money is to offer clients a pre-payment or retainer option. Ask them to pay up front at the time they place their order, for some or all the services and products. If it is reasonable and fair, offer them a discount for pre-paying. Sell receivables and POs. Factoring companies will pay you today for money that is due to you in the future. Do you have some big invoices outstanding with clients that would benefit you if they were collected today rather than in 60 days? If so, factoring may work. Keep in mind, though, factoring companies are out to make a living, too. They will only take on invoices that they are confident they can collect and will take a pretty large percentage, sometimes paying you only 75% of the total invoice. Factoring companies offer the same deal for purchase orders. So, if you really need cash now, once the client commits to using your company and issues a PO, you can go to a factoring company and get the coin right away. Friends. We already discussed how to raise money for yourself and your family. When it comes to friends, you must treat them just like family. Remember, the consequences of a loan gone bad can run much deeper than just bad debt. This time, instead of turkey leg being thrown at your head, it will probably be an empty beer bottle. Fools. When it comes to the final F, fools, I suggest you never borrow from them. I think the term fools is thrown around to be a little cheeky, but they are out there. I don't like to consider this approach, though, since a fool implies a win-lose scenario. Basically, you are saying you will get cash that you need from people who are idiots for lending it to you. Either way, someone is going to lose, and if your foolish lenders lose, it probably won't be pretty for you. Even if you come out okay, I believe in karma. What comes around, goes around. Taking money from fools sets you up for payback someday, somehow. As Mr. T says, I pity the fool. Credit cards. When I launched my first company and needed inventory for clients, I purchased it all on credit cards. I was able to borrow about $25,000 through credit cards, even with zero income and a marginal credit history. Here's the trick I used. I signed up for about 10 cards and then signed my wife up for about 10 more. Between the two of us, we got $25,000 of total credit. When I made a purchase, I rolled the balance over to new cards at zero interest. Every chance I got, I would pay off one card, get the limit raised, and start loading it up again. I closed the other cards. This is not a clean method and not great for credit history, but it is very easy to get and help me to access money immediately. Don't borrow to cover your mistakes. I nearly destroyed my company by borrowing to death. It wasn't the credit cards. I paid all those back. It was the bank loans. I borrowed a quarter million dollars and blew it. One of the biggest mistakes I made was using the money to cover payroll. I gave myself a bloated salary and paid for employees who weren't needed. Finally, when the money ran out, I had to face the truth and cut my salary, fire employees, and get back on track. I still had a huge amount of debt on my shoulders. The lesson in the story is that if you are borrowing money to cover your own salary and others, you clearly have too much money going out. At that moment, you need to make the hard decision of letting people go. Chances are you could be doing just as much work or even more with fewer people. Get rid of those folks and their salaries who aren't adding substantially to the bottom line. You're going to have to fire them at some point, so you might as well do it now and give them a little severance so they can find better jobs elsewhere. If you can't afford salaries, consider hiring subcontractors to do some of the work an employee would do. You'll save the cost of matching Social Security and Medicare payments, and you'll save on the cost of employee benefits such as health insurance. Just make sure you issue 1099s at the end of the year for eligible contractors and take out a basic worker's comp policy to cover them, just in case. Also, if you are paying yourself a fat salary that the company needs to borrow to cover, stop! Pay yourself only what the company can afford and only pay that after you've taken your profits first. We'll talk about the profit first method shortly. For now, just enjoy being overwhelmed with anticipation. Don't give personal guarantees. I give in. You tried everything else and it didn't work. Now it's time to go to a banker. They better have a good offer or a really hot teller, otherwise I wish you wouldn't go. But if you do seek funding from a bank and it makes an offer, write it without a personal guarantee, also called a PG. A PG basically says that if you can't pay the loan back, anything that is owned by you legally goes to the bank. Of course, if you are the bank, you want to reduce your risk as much as possible so you sure as hell better get the borrower to sign his life away. Despite this conflict, there can be mutual ground. The bank may not require a PG if you can reduce the risk considerably. The easiest way to eliminate the PG is by lowering the loan amount. There's an old saying in banking, if you can't pay the bank back a hundred dollars, that's your problem. If you can't pay the bank back a hundred million dollars, that's their problem. Other methods may include involving a co-signer such as a family member or even a key client. Seek away and you may just find it. Take action now. Building on the tips and strategies included in my book, complete the following exercises to create a customized list of resources that could work for your business. This part is really fun and totally addictive. You'll be scavenging with the best of the TPEs in no time. One, make a list of everything you need in your business that you know you can get for free. Then, make a list of everything else you need. Next, use your TPE ingenuity to come up with ways to get those things for free too. Two, if you just can't get something for nothing, take your list and brainstorm ways you could barter for what you need. Three, if you still need stuff or services that will cost money, identify ways you can get what you need on the cheap.