Discover the Creative Financing Strategy to Finance Your Start-Up
“The solutions to the problems of entrepreneurs are the entrepreneurs” the first time I heard this statement from my mentor Strive Masiyiwa I was drowned in an ocean of imagination. As you know one of the best ways to grow rich is to think.
I sighed as I tried to understand the above powerful and engaging statement. The fact is that there are many problems faced by entrepreneurs, especially the start-up ones. But, problems differ in importance.
Here is a report by the Small Business Association “30% of new businesses fail in the first three years, 50% of new businesses fail in the first five years and 66% of businesses fail during the first ten years. What do you think could possibly be the cause of this problem?
There are many such challenges that confront entrepreneurs especially in emerging economies. Some of the challenges are; funding problem, policy problem, management problem, model problem etc. this is the meaning of the above quote that the problem of entrepreneurs is the entrepreneurs.
As an entrepreneur, I have a solution to one of these problems that entrepreneurs in Africa and emerging economies face. The problem I have a solution to is the funding challenge at the early stage of business. The solution is called the Creative Financing Strategy (CFS).
What is it all about? How can it benefit me as an entrepreneur? How can I adopt it? You will find answers to these questions as you continue reading this article.
Image credit: solaven
The Two Conventional Forms of Financing
The two conventional forms of financing for entrepreneurs are;
- Debt financing
- Equity financing
According to fundingpost debt financing means when a firm raises money for working capital or expenditure capital by selling bonds, bills or notes to an individual and institutional investors. In return for lending the money, the individuals and institutions become creditors and receive a promise to repay the principal and the interest on the debt.
Debt financing is when an entrepreneur borrows money from a person or a bank with an agreement to pay the principal and the agreed interest at a maturity date. So, when you borrow money you have to repay it with interest at a fixed date. This is used by business people to fund business operations.
As defined by InvestingAnswers equity financing is the method of raising capital by selling the company stocks to investors. In return for the investment, the shareholders receive an ownership interest in the company. So, the entrepreneur has to trade-off a part of his ownership of the company in order to secure equity funding. This is mostly used by entrepreneurs. Companies like Uber, Lyft, Airbnb, Google, Apple, Microsoft; Econet Wireless etc employs equity financing option to raise money to run their operations.
The new type of financing to be added to the two above is the creative financing Model. Let’s know the meaning of creative financing Model?
What Is The Creative Financing Strategy?
The only place you can find the creative financing concept or model and its applications is in the book called 3S Rules. It was simplified and cases of entrepreneurs that have used it were discussed.
The creative financing model is a financing option that will do the following for an entrepreneur;
- It will help you to retain the full ownership of your business in the early stage
- It will help you to avoid delay in seeking for unfruitful funding
- It will help you to avoid being put under pressure in trying to pay principal and its interest.
Creative financing model is a financing model that states that an entrepreneur at an early stage should look at themselves and their skills that can be used to create money to finance their business. Entrepreneurs could actually make money by looking outside their business, business ideas, then the money created from other sources should be channeled into running their business.
As Dr. Strive Masiyiwa said he had to get involved in electrical work in order to make money to start his company. That is a clear example of a creative financing approach. Can you see the picture of how it works?
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How Does Creative Financing Strategy Works?
The reason why this financing option is very important to early stage entrepreneur is the fact that investors don’t invest in ideas but ideas that have been transformed into businesses. So, creative financing will help you to create the money you need to give your idea its business formation. You may be asking, how do I adopt this strategy? I will describe the process below;
discover what you can do to generate money to run your business. This will require you to look inward at your skills and abilities you have to create value. Once you have looked inward then decide on what you can do.
A good example is someone that has an idea to start a solar company but doesn’t have the capital to do so. The same entrepreneur knows how to fix electrical problems. What he should do is this; he should apply the creative financing model by working as a per time electrician in order to raise money to start his company even if it involves selling solar product at a start. Yours can be teaching private lessons, freelancing, laundry etc
Step Two: financial planning and financial discipline
The essence of generating money by working is so you can use it to start your business idea or to solve a problem in your start-up. So, this is the stage you cultivate the habit of saving your cash until it is enough to start your business.
You can choose two saving options; we have the thrift or mukando saving system and the personal saving plan. The overall goal of your savings is to accumulate the money to start your dream business.
Image credit: marshable
Executing your business model or idea with the money generated through the creative financing approach. This is the stage where you actually start your business with the cash you have accumulated. This technique will help to graduate you from an idea entrepreneur to a start-up entrepreneur with a tangible and seeable business.
Now, go and execute this great financing option.
This article is just the tip of the iceberg of the creative Financing Strategy and its applications by some of the finest entrepreneurs you hear about today. You can order your copy of 3S Rules to discover how the Creative financing strategy really works.
other relevant material is pitch deck series, get them via this link
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The Business Models of Billion Dollar Worth Entrepreneurs
Have you ever wondered what makes some business start-ups to succeed and become global giants
while others fail?
With 3S Rules you will learn from global icons who founded companies such as Amazon, Microsoft, Lyft, Apple, Alibaba and many others on how they discovered their business ideas.
3S Rules will give you a first hand founder mindset on how to build your billion dollar startup idea.