MBA2307 Why You Should Always Bootstrap Your First Business

0:09Heyo! Welcome to the$100 MBA show, powerful business lessons you can count on in just 10 minutes. I'm your host, your coach, your teacher, Omar Zinhome. I'm also the co-founder of Webinar Ninja, an invented software company I started with my co-founder back in 2014. And in today's lesson, you will learn why you should always bootstrap your first business. Listen, this is my personal advice from my own experience and what I've learned being around so many entrepreneurs in the last 20 years. Taking on a loan to fund your business or even taking on an investor means you're taking on debt. It's pretty clear when you take a loan from a bank that that's debt or you're using credit cards or whatever it might be.

0:49But also, if you're getting an investment from an investor, you're indebted to the investor to give them a ROI, right? They are expecting a return on investment. And the reason why I'm not a big fan of doing this for your first business is because this is not the only debt you'll have to deal with. I'll explain in today's episode. What I want you to do instead is build a business on your own wits, on your own money that you can afford to lose. Because feeling the pain of losing that money is important. And you will lose money. This is going to happen, okay? But it's going to help you learn how to run a fiscally responsible business.

1:23I'm going to break it all down in today's episode and show you some of the options that you can look into when it comes to funding your first business without taking on debt or investors. Let's get into it. Let's get down to business. Now, I mentioned at the top of the episode that when you take on debt, whether it's a loan, credit cards, whatever it might be, or even an investor where they're looking to get a ROI, this is not the only debt you're going to have to deal with. When you're starting your first business, you've got to deal with ignorance debt. It's a real thing. What's ignorance debt?

1:55Well, you're going in with no perspective, with no experience, with no prior history of running a business. So you're going to pay the tax on your ignorance through the mistakes you're going to make. And there's no way around it. OK, you have to go through it. This is how you learn how to become a great entrepreneur. And every entrepreneur story has this built in. If you read any biography, you listen to founder stories on podcasts or whatever it might be, they are going to go through tribulations, some mistakes, some problems. They're going to learn the hard way. And that is the ignorance that they have to pay.

2:30And this is normal. This is how it is. Let me give you an example. Let's say you wanted to learn the piano, okay? You are new to piano. You don't know anything about piano. You've never learned it. You don't have any idea of how to play any songs or you don't know the notes or anything like that, okay? When you start out, you have all these options. You can get a private lesson in person. You can do a virtual lesson over a video call. You can use one of those apps that listens to your music or listens to what you play and corrects you. You can buy an online course on Udemy, for example. You could just teach yourself by listening to the song and try to repeat it.

3:03There's all these different options, and you're not going to know what's best for you and what's going to help you progress fast until you just choose one, okay? You're just going to choose one of these paths, right? You're going to choose maybe an online course, and you're going to see how you progress. And maybe you're going to realize, oh, I'm not progressing as fast as I should. Let me try something else. Let me get a private lesson once a week. You get the private lesson. You realize, oh, man, the private lesson is not enough. Once a week is not enough repetition. It's going to cost you too much if I do it more than once a week.

3:30Let me try using one of these apps. You try one of these apps. You start progressing. You're finding that this is actually what you needed all along. And it helps you learn how to play the piano. You had to fail a few times. You had to fall on your face. You had to spend some money and waste some money. And the same goes with building a business. This is what's going to happen. And there's no way to avoid it. It's a rite of passage. Failure is a rite of passage for every successful entrepreneur. So since you have to pay that debt, since you got to pay that tax of ignorance when you start out, and we all do, I paid it tremendously.

4:01And I didn't have all the resources that are available now with the Internet and AI and all these experts at your fingertips on YouTube. I definitely paid that debt. So the point here is, is that you're going to pay the ignorance debt. That is bad enough. That means your likelihood of success is far less than it is going to be if you are experienced. So you don't want to risk money or debt and put yourself in a really bad position knowing that these are your chances. This is what you're going to have to pay off in terms of ignorance debt while you're paying the other debt and other finances. So this is why I highly recommend it's great to play with house money.

4:42What I mean by that is you want to be able to build a business on your own cash that you can afford to lose. This allows you the freedom to try things, work on things, fail, and know that you're not going to be in financial trouble. Or your reputation as an entrepreneur is not on the line if you have an investor. It's a small world. If you get an investor to back your idea and your idea doesn't do well or you fail, you go out of business, it's going to be very hard for you to raise money again. Even if the investor doesn't even know about it, they're going to ask about it in your next pitch. What happened to your other business?

5:15So it's better to go after investors or take on debt when you have some wins under your belt. When you know what you're doing in business, you know what kind of entrepreneur you want to be. You have some successes. You have some track record that shows that, hey, I've learned the hard way. I'm now able to be able to make solid decisions in my area of expertise. So if you're starting a first business, how do you do without taking a loan or taking on investors? Well, you'd start with a low capital required business, a business that doesn't require you to have a lot of upfront capital. Businesses like a service-based business, whether it's consulting or graphic design or fitness, coaching, whatever it might be.

5:53The point here is that you're exchanging time, your time or somebody else on your team's time for money, a service. Or you can create a business that has leverage of distribution, meaning like you can write a book and sell it many times. You do it once and you sell it several times. You can create a course and you can sell it several times. You can sell a set of assets like some graphics or icons, sell it many times. Or you leverage your own skills if you are capable to create something small and then build slowly. Like a software company, if you're a programmer and you can program it yourself, you can just start really small by just having a few customers to validate the idea and you can keep your costs down.

6:31Now, software is a little bit complicated because most software companies that actually give a lot of value to the customer require a lot of funding, meaning server costs, engineering costs, all that kind of stuff. But it is possible to run a very small lean software company if you are kind of the head of design, development, everything. The point here is that you're going to choose a business model that works for your financial situation. The good news is that a lot of these businesses don't require much capital to start with. You can start a website and a blog and be an affiliate marketer for less than$100.

7:02You can start a YouTube channel for free and start building content and becoming a creator. You can be an author and write a book and self-publish a book on Amazon for a few hundred dollars. We all can scrape together a few hundred dollars, save some money on the side, side hustle, consult, do something to earn a few bucks to get started. This puts you in a much better position so that you can learn at your own pace, afford the blows and the mistakes you're going to make that you know it's going to happen and still land on your feet because your costs are low. Now, once you've bootstrapped this business, let's say it's a success and you're making good revenue and you have a good business model and you've shown that there's product market fit and customers love your product.

7:43You have traction. You've been doing it for years. You're in a much better position now, a much better position to get funding of any kind, whether it's a loan from a bank or an investor. An investor now can say, wow, this person knows how to make money. This person knows how to run a business. They have proof. They have data. I say this all the time. Have you ever watched Shark Tank? The first question they ask is, how many sales do you have? Because if they know that you can make sales with this product, they're happily going to invest. This gives you leverage. This gives you an opportunity to say, hey, I know what I'm doing.

8:14You can trust me with your investment. I'm going to get your return on investment. This is not an unknown entity. I have a track record of experience, of finances, of money. You're just riding the train. That's what investors want. They want a bullet train that's going somewhere that they want to go. And they just want to hop on that train. You're driving that train. They don't want a train that's sluggish or needs their help or need them to, you know, shovel coal in the back so they could keep going. They want to just put their money and they want you to do all the work and they want to see success.

8:45they see you are already getting success. You're already reaping the benefits. You're already being profitable and making money and you have customers that are happy. It's a no brainer for them. It's like, yes, where do I sign? This puts you in a better position and allows you to then, hey, you've already paid off all the ignorance debt. Not all of it, I should say most of it because we always keep learning and we have a proven track record. And now we're in a position where we're getting some cash to just take us to the next level, to give us that super boost. You're getting your mushroom like Mario does and get superpowers, right?

9:20It's just going to take things to an absolutely new level, rather asking for the money when it's a do or die. Thanks so much for listening to The$100 MBA Show. If you love what you hear, hit subscribe, hit follow on your favorite podcast app. Just hit the triple dots on Spotify, Apple Podcasts, and hit follow so you get our next episode automatically and access to over 2 ,300 episodes in our back catalog. Before I go, I want to leave you with this. One of the reasons why I really believe that you should bootstrap your first business is because you want to have control over your finances. You don't want to be under financial pressure.

9:50Financial pressure is one of the worst stresses of humankind, right? It's the worst, okay? And if you can keep your costs low and you can run your business for peanuts, you can always find a way to make sure you cover the costs, even if you're not making any money. But as soon as your costs go up and you start building this huge dream and you owe money to people, the dream starts fizzling out because it's not enjoyable anymore. The stress gets to you. I don't want anybody to have to endure any of that kind of financial stress. I've been there before. It's not fun. That's why we want to stay lean in the beginning, pay off our regular debt, grow the business, pivot if needed, and make some money along the way.

10:25Thanks so much for listening, and I'll check you in tomorrow's episode for Red Friday. I'll see you then. Take care.