The advantages of starting a business when you are undercapitalized are priceless. They can force you to be creative, resourceful, and frugal. They focus your attention on sales to achieve a positive cash flow quickly, before you go out of business. They can save you from squandering cash on expenses that don’t produce income.
But there’s another big advantage to being undercapitalized. It often requires that you do many of the jobs yourself because you simply can’t afford to hire someone to do it. Sure, there’s a big learning curve, and in many cases, the job could be done much better and faster by a pro, but sometimes you really have no choice. So what are the benefits here?
Evaluation. When you must do the job because your finances are spread too thin, you will certainly ask the question, “Is this absolutely necessary?” And, “Is there some other way that we can achieve the same results?” With big capital and a generous “burn rate,” you might just throw money at the problem thoughtlessly as if to say, “This is just the way it’s done, right?” But is the job really required, or are you just buying into what others say you must do?
At Barefoot, we were told to advertise; spend tons of money on ads to make Barefoot Wine a household word. We simply didn’t have the bucks. But still we knew we had to get the word out. It’s just that we had to do it ourselves, and inexpensively. It also had to be very targeted and effective because one way or the other it was still going to cost us. But we had only a fraction of what was necessary to get traction with conventional advertising, making that an unviable choice.
So when a local neighborhood group asked for a donation for a kids’ after-school park, we gave them product rather than cash. Sales in their immediate area took off! Because we were broke and had to do the advertising (and everything else) ourselves, we noticed everything that worked, even off the wall stuff like this. We tried it in another neighborhood. It worked there too! In fact, it worked so well, that even when we could afford to buy advertising, we stuck with what we called, “Worthy Cause Marketing.”
Experience. When you are forced to do the job yourself, later when you can afford to have someone else do it, you are less naïve. You recognize quickly when you are being taken advantage of, and are less likely to put up with excuses. You also gain the respect of the folks you hire because they understand that you know the job because you did it!
When we started Barefoot, we couldn’t afford a salesperson. So Michael did all the sales. Talk about hard knocks! It took him years to become proficient at it. But when we did hire salespeople, they quickly learned he had done it himself.
What if we had been well financed? We would have hired salespeople without really understanding their job firsthand, and without knowing if the excuses were real or not. We would have spent tons on conventional advertising and it would have been less effective than what we discovered out of necessity.
Sometimes desperation is just the advantage your start-up needs to disrupt the established patterns that can waste your precious time and money! Here’s to the glorious benefits of being underfinanced!
Who We Are
Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.
Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.
They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.
Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.
To make inquiries for keynote speaking, trainings or consulting, please contact firstname.lastname@example.org.