Are you struggling to find capital for a new business? Do you wonder how successful entrepreneurs secure their initial funding?
Starting a venture often requires financial backing, and the process of obtaining it can be daunting. In How to Get Rich, Felix Dennis explains that entrepreneurs face various options, from personal connections to venture capitalists, each with its own set of advantages and risks.
Read on to discover insider tips on securing capital and navigating the challenges of funding your startup.
Capital for a New Business
Dennis acknowledges that seeking capital for a new business is often the most unpleasant part of the new venture. When starting out, entrepreneurs frequently have to ask others for loans or donations, which feels uncomfortably like begging. However, Dennis describes this process as a necessary evil, saying that the willingness to go through this embarrassment separates serious entrepreneurs from people who merely dream of wealth.
(Shortform note: Dennis assumes that you’ll need to collect a significant amount of starting capital to launch a business, but there are other ways to go into business for yourself. For instance, in The $100 Startup, entrepreneur Chris Guillebeau suggests starting a “microbusiness”: a business consisting of only one person. Guillebeau says that, as long as you have an idea for a product or service to sell, you can start a microbusiness at very little cost—all you need to pay for is a website for your business and a service to process customer payments. He also recommends creating a short business plan, no longer than one page. This is both to prevent you from getting bogged down in endless planning, and so any potential investors can quickly and easily learn about your business.)
With that said, Dennis argues that human nature inclines people to be helpful, especially toward people who are young and inexperienced. Therefore, many successful businesspeople are willing to offer assistance to those who are just starting out.
Dennis also emphasizes the importance of loyalty and reciprocity. Maintaining relationships with the people who help you early on—and returning the favors when you’re in a position to do so—will help you maintain a strong support network for your business and any of your future endeavors.
(Shortform note: What Dennis describes here is a type of reciprocal altruism. This is a concept in animal behavior that describes unrelated organisms helping each other, even when there’s no immediate benefit to doing so. In Behave, neuroscientist Robert Sapolsky argues that reciprocal altruism is the foundation of human civilization because early societies relied on everyone working together to ensure that the population was housed, fed, and protected. This helps to explain Dennis’s assertion that it’s human nature to help one another; reciprocal altruism was a crucial survival strategy for our ancient ancestors, meaning we’ve evolved a natural drive to work together for everyone’s long-term benefit.)
Tip: Ask Friends & Family
While there are numerous ways to get your starting money, Dennis advocates leveraging personal connections and small favors from friends, family, and acquaintances. He prefers this approach because it allows you to retain full ownership of your company, and people you know will most likely wait longer for returns on their investments than banks or venture capitalists will be willing to.
The author warns against using high-interest credit cards or dealing with loan sharks. It’s often difficult for small businesses to secure reasonable loans, and punitive interest rates can cripple your business before it even gets off the ground.
Borrowing from venture capitalists is equally risky: They’re eager to invest in new businesses, but often demand large equity stakes and quick returns. This means that, while venture capital can lead to rapid growth, it often requires you to give up control of your business.
| How Poverty Hinders Entrepreneurship Dennis unintentionally highlights one of the many extra challenges that people born into poverty face while trying to start a business and become wealthy: access to capital. Unlike those from more affluent backgrounds, aspiring entrepreneurs from low-income families typically lack personal savings or family wealth to draw upon for initial funding. This problem is compounded by their social networks, which are often composed of other low-income individuals who can’t provide any significant financial support or investments. As a result, entrepreneurs from low-income backgrounds may be forced to do exactly what Dennis warns against: take out predatory loans with exorbitant interest rates or accept money from venture capitalists who might try to meddle in their company. This is just one example of how people and families get trapped in the cycle of poverty—because they don’t already have wealth, they have a much harder time creating opportunities to earn wealth. |
