Why Being an Outsider and Undercapitalized can be Your Strongest Assets

Sometimes what you don’t have can be a true blessing. When we speak to aspiring entrepreneurs and students hoping to start their own businesses, they often tell us that they are afraid of being under capitalized and not knowing enough about their industry.

They have been taught that in order to start a new business, they need to write a detailed business plan and get it financed. They have been encouraged to stay in an industry they know.

Sometimes however, opportunity presents itself when you least expect it. You may think you do not have all the knowledge you need, or a detailed business plan, or the financing in place. You may not have even considered this business. Yet seizing an opportunity is generally time sensitive.

Sure, you’ll need experience from folks in the industry and you’re going to have to hustle to write some kind of a plan. But from our experience, most business plans are only good for getting initial investors. Once the rubber meets the road, the plan will often be a memory and the cash flow projection will be the new “plan.” And that will change monthly. As far as money is concerned, most start-ups never have enough anyway. So being adequately capitalized is a relative term. That means you may have to ask your relative for some extra cash – even if you thought you had enough to get started.

But being well capitalized creates its own problems. Some attempt to solve all their problems by throwing money at them. Some buy more advertising when sales are down, when they really need to concentrate in a smaller market they can control. Some throw a ton of money into a cute logo, clever marketing slogans and cool packaging when understanding the distribution system is what is really needed.

When you are underfinanced, you have no choice but to be creative, resourceful and careful. We often say, “If necessity is the mother of invention, then being under capitalized is surely the father.” Some of the most imaginative solutions come from being forced to solve business problems with limited capital. In fact, you may well discover new ways of doing things that are more efficient and less costly than conventional thinking would dictate. We were unable to afford advertising when we started our business, so we discovered another way to get the word out. Turns out, it was more effective than paid advertising. By donating our product, time, and resources to non-profits within our market area, we gave their membership a social reason to buy our product.

When you are outside the industry, you think outside the box. When we started Barefoot Wines, in a world of stuffy wine labels, we put a colorful, fun, label with a foot on our bottle. In a world of mostly male gatekeepers and vintage wine, we produced a non-vintage wine blended for consistency, and aimed our marketing at predominately female shoppers. We didn’t know the industry, so we didn’t realize how unconventional all this was. Now our industry has loads of non-vintage wines with fun labels.

True innovation often comes from the outside by folks who don’t know what they can’t do. Imaginative problem solving often comes from folks who still have to get the job done in spite of inadequate capital, because they can’t do it any other way.

So if you are an aspiring entrepreneur, chances are you already have two effective weapons you can use: limited capital and limited industry knowledge. Use them to spearhead your imagination and innovation – and maybe even reform your entire industry!