![]() While I am extremely grateful for the help we received, and while we were able to fully pay it back, it can be highly emotionally draining to worry about something outside your control happening and failing to meet your obligations to a close friend or family member. ![]() I had a close family member provide some debt financing to my first business, and that hung over my head every day we hadn’t paid it back. ![]() Business, as they say, is business - and things go wrong. And while the friends and family method is fairly common, I’ve developed a strong personal bias against this type of financing. Friends and family. Also like in a startup, founders may be able to raise some money from friends and family who are willing to risk some of their assets.That flexibility can be invaluable in the early days. If you have a steady 9-to-5 job, you may not only have a little extra cash, but a few hours each day to dedicate to a project on the side. This could come from savings so you can go full-time right away, but it could also be a surplus salary that you can use while you moonlight working on your business. Your own job. Just like in a startup, it’s very common for founders to put in their own capital to get a small business going.So how might you do that? Here are some common ways: You may have to purchase inventory, equipment or commit to retail space for some period of time. You may need to hire some help before you have the profits necessary to do so, or make payroll before you’ve been paid on a project. Small businesses often do need capital to get their footing. Is your company irrelevant? If so, it’s probably a startup. Here’s a handy gut-check for the “startup or small business” question: Imagine your company 10 years in the future, having grown entirely on its own profits. We weren’t in a race to create a defensible intellectual property that would dramatically alter the dynamics of a market or create a new one entirely (which you’re often doing in a startup). We had competitors, of course, but often, we were the only serious bidders on a project. This worked for us because the goal was never to become a huge company. Over time, I used our profits to hire more people and turn it into a nice little business. In fact, it was profitable on day one - I charged a decent hourly rate for my services, some of which went to my salary and some of which stayed in the business. Without the brutality of highly-funded competitors trying to eat your lunch day after day, small businesses often have the luxury of growing more slowly, even totally organically.Īs an example, my second company, a design and development agency, never took any outside funding of any kind. They often operate in less competitive markets and don’t have the explicit goal of becoming a huge company. Small businesses don’t necessarily need to grow quickly (though they should certainly want to grow, as stagnation is one very small step away from contraction).
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