Starting a company is an expensive proposition, which is why the startup community is filled with privileged people with expensive degrees. When it comes to starting a company, you’ll need cash and contacts. But you can’t count on investors, your own savings won’t suffice, and you definitely can’t count on revenue from your online product or service. So if you’re broke, you’ll need another plan. First, let’s review why investors, savings, and revenue won’t suffice:
Investors want to see traction. Angel and venture capitalists want to see a live product with customers and traction before they’ll consider investing. Ironically, when you need them most, they’re hardest to win over. Beyond this, it takes at least 4 months for a first-time entrepreneur to close a round of investment. So even if you have a killer team and product, it will take time to win investors.
You’ll burn through savings really fast. If you live in a big city, plan to spend on marketing, hire anyone at all, and need to work in an office, you’ll find it easy to blow through $25,000 in just a few short months. The anxiety of being broke will infect everything you touch, so this is not a great strategy.
Revenue takes longer than you think, and is less money than you think. Most online startups are cash inefficient early on, but extremely efficient at scale. This is why they need investors. Even companies with revenue need to put that money right back into the business, so revenue won’t be enough to pay salaries in the first year.
What to do instead
While online apps and products are expensive to build and maintain, most services, like consulting or web development, are free to operate. So I suggest cultivating an expertise and serving first as a consultant. You can consult as a web developer, a sales person, or product person, and you can do it on your own or with a consulting company at a place like Crowd Interactive or Metova. All will help you transition into a c-level position at a startup later.
The benefits of consulting include making many contacts, seeing opportunities, and earning money. You can build your product and learn about customers at nights and on weekends.
You can comfortably transition from consultant to full time on your startup when you have real traction with customers. That’s also a great time to look for funding from investors.