690: 9 Ways to Get Money to Start Your Side Hustle

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1:14Now you just need the money to get it off the ground. Even though lots of small businesses have pretty low startup costs, especially the ones that we cover on the side hustle show, most are still going to require at least some startup capital. In fact, the problem of money is a pretty consistent one among side hustle show listeners. in our annual surveys. Time, I don't have enough time to do this thing. Money, I need the startup costs. Ideas, I don't know what idea to start. And then marketing and growth. Those are the four issues, four struggles that are almost always at the top of the list. According to CB Insights, 38 % of startups fail because they can't raise new capital.

1:53And while most side hustles aren't going to fall into that venture capital category of needing to raise hundreds of thousands or millions of dollars, it is still important to have the funds you need to get the business off the ground. It could be that critical infrastructure, it could be licensing and insurance, it could be equipment or inventory, software, key personnel perhaps. And of course, we're going to try to stay lean, we're going to try to be creative about it, but some stuff just costs money. And in this episode, I want to share the most popular ways to raise those funds for your new business so you can choose the path that makes the most sense for you along with some real life examples along the way.

2:30And before we get into it, you should know there's three primary types of startup funding. That would be number one, bootstrapping, self-funded. That's the self-funded option. Number two is debt financing. And number three is equity financing. And the main difference between those is ownership. Bootstrapping, you maintain all ownership. You're investing your personal savings and funding the business that way. Debt financing involves borrowing money from an external source. It could be a bank, it could be a credit union, it could be an equipment lender, and you agree to repay that borrowed amount plus interest over a set period of time.

3:06But both of those options, bootstrapping and debt financing, they allow you to maintain ownership, maintain control of the business. On the other hand, equity financing involves selling shares or selling ownership stakes to investors. They don't expect necessarily any interest payments on that, but they have a share in the upside of the business. If your business becomes a$10 million operation, you gave away 10 % of it, all of a sudden that could turn into a pretty substantial return for those investors. So be careful, be wary of giving away too much equity early on. All right. The first method is what we've talked about already.

3:40That's bootstrapping. This is how most side hustles, this is how most small businesses get started. So instead of seeking funds from lenders or investors, you're going to rely on your own money and your own hard work, your own savings to fund the business. According to the Chamber of Commerce, 78 % of small businesses, nearly four out of five small businesses are going to use this method. They're going to use their own funds to start the business. This is how I first started. This is how the vast majority of side hustle guests start their business. Now, a common path here is, especially for side hustlers, use the funds from your day job.

4:15Use your day job salary to cover your startup costs. We've had guests call their day job their silent partner or their unbeknownst angel investor into their side hustle. So in episode 299, I talk a little bit about this early journey of kind of parlaying savings into the next thing. the first step was you know taking my earnings from like part-time high school jobs and then buying a pickup truck to start painting houses the truck was like 3500 like a 1991 toyota pickup still i still look for that car out on the road sometimes um took 13 000 from that painting business painting houses and then they put that as a down payment in an investment property and took 10 grand from the sale of that house a couple years later and then put that into the development for my online shoe business, my first real online side hustle.

5:06And then since then, everything else has been like less than$500 to start. So I think I've become more risk averse in my old age, but bootstrappers allow you to be pretty risk averse. You take this lean approach, you focus on the essentials, you really limit unnecessary expenses. A mentor of mine gave me that advice, you know, mind the nickels and dimes and the dollars take care of themselves. it's about being resourceful it's about stretching your dollars it's about doing more with less and really keeping that overhead low and the question you might ask if you're faced with a question about an upcoming expense is it necessary does this drive revenue early on i did a lot of work myself like on the side hustle brand in particular you know had maybe a couple hundred dollars in development costs to like customize the domain name or something like that but I did a lot of it myself.

5:59And on the podcast side, grateful to have lots of help now, but I edited the show myself for the first three years as an example of, you know, starting really lean. You can also do, try and negotiate with certain suppliers, vendors, contractors, because sometimes they recognize they're dealing with a small business instead of, you know, an enterprise client, and they might cut you a deal. They might adjust their pricing. When I was first getting the shoe site bid out, I remember I was living in Northern Virginia at the time I put the job up for bid on guru.com, which is kind of a precursor to Upwork.

6:32And, you know, one of the one of the guys who bids is like half an hour away from me in Virginia. So I go over to his apartment and he kind of recognizes at a certain point during this meeting that, oh, there's no company backing. This is just a 22 year old kid with an idea. And so he's like, oh, OK, I'm going to adjust my quoted price down a little bit. And I was able to start a little leaner in that way. But that is funding method number one, bootstrapping. Number two is the friends and family method, getting support from your inner circle. These are people who want to see you succeed and they might be able to offer some kind of loan or financial backing to help you with that.

7:13Clutch.co found that 22 % of founders received funding from friends or family in the first three months of launching their businesses. I want to say that this was some of the seed money for Amazon, you know, friends and family. We'll throw a few hundred thousand dollars your way. But this isn't something you want to rush into because if it doesn't work out, this could be a strain on relationships with the people closest to you. Never borrowed money from friends or family. This is like an area where it's like, you tread very carefully. And you got to be as open and transparent about it as possible.

7:45You want to share your vision for the business. I'm going to outline the potential risks and rewards, make sure everybody knows what they're getting into. So transparency is essential to keep everyone on the same page. And not that I would necessarily recommend this method, but this is what Kat Block did to get her photo booth business off the ground. We'll take a very short term loan from the bank of mom and dad. The model that they had was 9 ,000 US, which I'm in Canada. so for me that was like$13 ,000 when you do the conversion and taxes and import fees like it wasn't cheap but it came with everything you know so I think all said and done to set up my business was probably about$20 ,000 when I look at like I actually hired a web designer and a graphic designer to make my logo and stuff and a couple of extra things that I needed to buy but like in terms of starting a business like how many businesses can you really start with 20k that that will generate like pretty good revenue pretty quickly.

8:42Not many. At least I haven't. Yeah. I don't know. That's like, it seems like a lot to me, but I'm from like the online world where it costs, you know, your domain name and your hosting and you're kind of off to the races. So it does seem like a lot, but there is a, you know, a physical product element to it. I got to, I got to buy the equipment for this thing. So what gave you the confidence to say, yeah, this is a ton of money. I'm, I'm going to go for it. I have a relationship with money where it's like, I always see like advantage to spending money. Like, I don't know, the saying that's always resonated with me.

9:13A lot of people's like scared money don't make money. And when I have like this feeling, it's like a gut feeling that I know I need to do something. It's like, I don't even think twice about spending that money. I didn't have that money. So the funny part was that, you know, I was like 27, maybe 25 or something around those lines. And I actually put the deposit of this photo booth on my parents' emergency credit card. And I was like, I don't know, I have like 30 days to explain what this charge is. But I paid it off. Don't worry. Scared money don't make money is a line. I'll always remember from that interview.

9:52Again, that was Kat Block from episode 471. on her journey to building what became one of the largest, if not the largest, photo booth companies in Canada. But that's funding method number two, the friends and family plan, one to tread carefully with for fear of damaging important relationships if things don't work out. One other strategy that I should have mentioned in the bootstrapping category is to borrow against your 401k. You can borrow up to$50 ,000 or 10 % or rather 50 % of your vested balance, whichever is lower, I believe. So you're going to borrow money from your own 401k. You got to repay yourself with interest, but at least that money is going back to you.

10:31If you don't pay it back, there is no impact on your credit score, but you might have taxes and penalties because then it would essentially be like an early withdrawal from that. Obviously, you're going to miss out on the returns those funds would have earned staying invested in the 401k over that time. but the idea of course is you hopefully generate bigger returns by investing in yourself investing in your business instead. Funding strategy number three is business credit cards. This is probably a funding strategy of last resort when you're starting your business because most cards carry really high interest rates and so you don't want to dig yourself into a debt hole that you spend years trying to climb out of.

11:11But even if your side hustle is new even if you haven't made any money yet, you might still qualify for a small business credit card because banks understand that new businesses often don't show a lot of revenue in the early days. And for better or worse, sometimes they're happy to lend you money to cover your startup costs. Business credit cards also come with perks like cash back, travel points, or discounts on some business-related purchases. But again, one to be wary of if you don't have the money to pay that back or you don't see an immediate path to revenue to pay back that because the interest rates can be really high.

11:45Strategy number four is bank loans or more broadly just debt financing, loan financing. So these business loans are a tried and true way to secure capital. In 2021, 34 % of small businesses reported applying for a loan. So this is like a really common thing to do. The loan is a lump sum that's got to be repaid over a specified period, usually with interest. This could be from your bank. It could be from the SBA, the Small Business Administration, and each type is going to serve different purposes. But you got to keep in mind factors like interest rates, collateral requirements, personal guarantees, you know, pick and choose, which would might make the most sense for you.

12:24So in a big business example, Patagonia comes to mind. They were expanding really rapidly in the 90s. So they utilized bank loans to fund inventory expansion and the growth of their physical like brick and mortar locations and stuff during that time. So it's a way to finance growth while preserving ownership and control. So way back in episode 143, I talked to Jeremy Michael Cohen and Fred Parada about how they financed some of their initial production runs for their Tortuga direct-to-consumer backpack line. Eventually found a factory that would do a smaller run for us and finance that through.

13:04We kind of re-upped the loan that we had with the Jewish Free Loan Association. We had paid off some of it and kind of re-extended our line of credit, if you want to call it there, and then also did a small loan with a lending club, which is kind of a peer-to-peer loan platform, plus kicked in a little bit more of our own money and got that first Chinese order through. Fun fact, I've still got my Tortuga backpack. It's been with me on pretty much every trip the last 10 years. So thanks to Jeremy and Fred for introducing me to that brand. But bank loans, lines of credit, credit unions, peer-to-peer lending, there's even some platforms that specialize in inventory funding for e-commerce brands.

13:43You're typically going to pay a higher interest rate on those loans, but they're also not meant to be carried for years. The idea is you can use it to get the inventory you need, generate sales to pay it off, and then recycle that capital into more growth. We've got more ways to get money for your side hustle coming up right after this. If you're still overpaying for wireless, it's time to say yes to saying no. At Mint Mobile, their favorite word is no. No contracts, no monthly bills, no overages, no hidden fees, no BS. Here's why I said yes to making the switch and started getting premium wireless for$15 a month way back in 2019.

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14:56Speeds may slow above 35 gigabytes on unlimited plan. Taxes and fees extra. See Mint Mobile for details. Here's the harsh truth about missing a business call. It's kind of like watching money fly out the window and straight into your competitor's hands. That's why today's episode is brought to you by Quo, formerly Open Phone, the smarter way to run your business communications. Quo is the number one business phone system built for 2025, not 1995. It's rated the top choice for customer satisfaction on G2 with over 3 ,000 reviews. Forget juggling multiple phones or using a landline. Quo works right from an app on your phone or computer.

15:34What that means is your whole team can share one number and collaborate on calls and texts, just like a shared inbox. Faster responses, happier customers. And here's what's even cooler. If you can't answer the phone, Quo's AI agent can. It can qualify leads, it can route calls to the right person, and it helps make sure your customers aren't left hanging. Quo is offering Side Hustle Show listeners 20 % off your first six months at Quo.com slash side hustle. That's Q-U-O, Quo.com slash side hustle. You can even keep your existing number for free. Quo. No missed calls, no missed customers. Strategy number five is to pre-sell your solution.

16:12And this might also be the fastest way to test if your side hustle idea has legs, is to ask people to pay for it, even before you've built anything. I've done this for a couple different digital products. The process works like this. You don't create a brief description of what the product is going to be. You ask people to pre-order it, often for a discounted price. If you get a critical mass, then you go and build it. That's what I did with the traffic course, which I want to say was a 2021 project. This was an online SEO course, for lack of better terms. I said, if I got 20 people to pre-order it, I'd go ahead and build it.

16:47And I think probably ended up with close to 100 there. And otherwise, like if you don't get the critical mass, you just issue refunds. So no big deal, but it's a way to quickly kind of prove out and validate people are willing to pay for something so you don't waste time creating something that nobody wants. Here's how Abby Ashley described doing something really similar for her virtual assistant training business. I actually stumbled upon a podcast in fall of 2016 about discovering your niche. And it was so funny because I had hired a business coach. I had really like done so much soul searching and this one stinking free podcast like totally just made me think I just need to teach or like I need to ask my audience and teach what I'm actually good at like what's what I've had success at.

17:34So rather than creating courses, I had the idea. I didn't just say, you know, what do you want to learn in general to my email list? I said, Hey, I have this idea for creating a virtual assistant course. I created this agency. I was able to quit my job doing virtual assistants. I thought up what like the modules for the course would be. I just kind of listed them out. And I asked if anyone was interested in that topic. If so, I was going to sell the course at a lower price. It was about half the price around, I think it was like$400 or$500, where I knew eventually the course would be probably a$900 ,000 product.

18:12I said, hey, you can get in early. And I had about 16 people buy from my list of a thousand. So I made$8 ,000 from doing that tactic, just asking people before I even created the course, is this something you would want to learn? Here's the modules. So$8 ,000 in pre-sales is pretty great and all well and good if you have an existing audience. If you don't, you've got to get a little more creative and kind of do this one-on-one hand-to-hand combat like John Logar did, who is an expert in what I'll call this idea extraction method, where he'll call up CEOs or high-ranking people inside of certain companies and just start probing for pain.

18:54Start asking them questions like, where are you spending too much of your time? Or what's dragging down your business? Or where do you see this industry in the next five years and what you're just searching for trying to let them arrive at the answer well if you had a magic wand what what would be the ideal scenario how would you tackle this problem and just maybe they'll arrive at the solution you don't even need to know how to build it as john will talk about oh i'll go find somebody else to know how to build it i'll be the middleman here here's a clip from our conversation which again one of the most fascinating episodes that we've ever recorded but i said you know right now you're spending a quarter of a million in four years time or five years time, that quarter of a million dollars is going to turn into a million dollars,$1.2 million in costs.

19:37It's worth investing 30 grand up front to get this nipped in the butt, which is 20 grand less than your brochures that you're about to print to get that done. Now, you're not the technical guy, so how did you go and get this done? Okay, so this is what happened in my scenario. I said, listen, I just want to figure something out because we might be able to significantly save some money here. I knew what the solution was once he said what he said, right? Because anybody with half a brain in our world would see that would be the solution. But it's important to let him, it's his idea, right? Exactly.

20:11Exactly. It was his idea. So I basically said, look, if you give me 20 minutes, I just hop in your boardroom. I just want to make a quick phone call to somebody. And it wasn't a phone call, it was an email. I wanted to just have a quick phone call to somebody, I just want to verify something. I can actually work, give you a rough idea of what it would cost you to get this fixed up. Right. So all I did was hopped on an email, sent an email to, I actually sent out, opt on to Odesk, created a job description outlining what needed to happen. So just roughly this is what it's going to be. And just, you know, I basically said, I've got a project price, you know, it'll be, give me an idea.

20:48So give me a range for a project price of something like this. Within 10 minutes, I had 16 replies. Well, it's ODesk, so there's always people trolling. My criteria for selection was people who had done over a thousand hours worth of work, who had specific knowledge and understanding of programming. So I was very selective in my criteria, but I literally had 16 people quote me on the job within 10 minutes. and so what I did was all I did was double the quote so whatever I was quoted I just looked for it scanned through very quickly whatever I was quoted I just doubled the price to what I would think the real price would be okay just to be safe just to be safe um and then I and then I just sat down I thought you know what's it what's it what's a couple of deals worth to this guy uh in profit what was the quoted price out of curiosity oh the quoted price was uh I was getting between$800 to$1 ,600.

21:47Okay, but he already told you it was a quarter million dollar annual problem. Oh, you was a quarter, well, he told me. Yeah, yeah, yeah. You sat there and worked that together. At the end of that, he was pretty much upset about it. He was deflated because he, oh, I do just, you know, I mean, there's an open wound. What are you going to do? You might as well just scratch it. Bleeding neck problem. Yeah, yeah, just keep scratching it away, you know, stick your finger in there. so in that process in that 10 minutes I roughly had an idea of how much it was going to cost for me to facilitate and one of my criterias was the fact that we could deliver the solution within at least 4 weeks so I just wanted to know that we can get this done in a month because he was shelling out in that month he was going to be shelling out$25 ,000 so in costs so I got the feedback and then not more than 20 minutes after that I made a phone call to a person just to verify a couple of coding issues around internal spreadsheeting with number changes and stuff like that.

22:48And because I just wanted to know, but all up the project was$2 ,400. So I quoted, I quoted 30 ,000. I said 15 upfront and then 15 on delivery. Okay. Wow. That's a nice, that's a nice margin. Yeah. That wasn't bad for an hour's work. not bad at all again that's john logar episode 126 in your podcast feed i know we've re-aired it at least once since that original one of them would probably been 2014 2015 when we first recorded but he shares these specific questions and tactics to get through to decision makers and even some interesting filters on the industry side on the business side to narrow down your target audience.

23:31But obviously building trust is really key here. If you're asking people to buy product or service that doesn't exist yet, you've got to involve your pre-sale customers in the building process. And maybe that's a value add for them, like help guide the direction of what it's eventually going to be. And then follow through. If you don't deliver what you promised, you're going to burn your reputation and people in particular industries know other people in that industry. So you burn one person, you may have just burned any chance of being involved many later in that industry. And what's interesting is he's talking about hiring developers on Odesk, which is now Upwork, to fulfill this project.

24:08But you might be able to do it all with AI at this point, if you're really good at this idea extraction, and then going out and building that solution, if it's one that could be delivered online. Really, really cool stuff. That is method number five, the pre-sales method, something I've used in the past and other side hustle show guests have used as well. Number six is crowdfunding. And this is turning believers into backers, into investors. So similar to pre-sales is a way to raise some money by collecting small contributions from a lot of different individuals. And primarily done online through platforms like Kickstarter.

24:43There are equity crowdfunding platforms. There are donation-based crowdfunding platforms, rewards-based crowdfunding. This is kind of the Kickstarter. Oh, if I'm going to back this thing. I hope to get a copy of the product when it eventually comes out. But it comes in different flavors. But on average, there's some data to say that crowdfunding backers pledge$88 per project. So if you need to raise significant funds, it's going to take a big audience to do that. And so if you already have an existing audience, that's great. You can put that out to your to your people. One famous example is John Lee Dumas pre-sold like$100 ,000 plus of his freedom journal on Kickstarter.

25:23The folks behind the side hustle board game that we had on the show a few years ago, they raised like$11 ,000 for their initial production run. Didn't have a huge audience to start with. And the idea, the goal is you start to gain some network effect or some virality on a platform like Kickstarter. I'm going to have to give it a little bit of a nudge. I understand that. But hopefully it starts to get shown to other people who would be interested in your thing. And there's some excitement, there's some momentum around it. And you can start to punch above your weight class. You start to reach beyond your pre-existing audience there.

25:59We talked with Pat Flynn. He and Caleb raised over$400 ,000 for the SwitchPod tripod on Kickstarter. And so here's him describing how that process went as a method for startup funding. And we had this idea, it wasn't done before. The idea behind the tripod is these legs can fold into each other and become a handle for you to easily kind of open and close and do your filming on the go. So that's what the SwitchPod is. And it worked really well. We launched it in 2019 on Kickstarter and we had generated$415 ,000 in 60 days from that launch, but it was not an overnight thing for sure. It took time to invent and create and iterate and fail on and quite a bit of investment, 25 to 30K of our own dollars put into that.