When Russ Perry was getting Design Pickle off the ground, he bought a pickle costume off of the internet and went to conferences dressed up as a pickle. He used this notoriety to get his first customers for Design Pickle, and now that company easily makes six figures per month in revenue. Russ funded Design Pickle with company revenue.
Bill Gates, who is right now the fourth richest person in the world, started Microsoft when he was working at Honeywell alongside his Microsoft cofounder Paul Allen. Bill wrote an unpopular but well read article in a major trade magazine that got him a lot of attention with developers, and they spun out Microsoft from MITS the next year. They funded the company with their own salaries.
Continuing the Bill Gates story, Rich Barton started Expedia within Microsoft. Barton went to Microsoft leadership asking for investment to take the company bigger, and when he was turned down he spun it out with Gates as his first investor. Barton went on to take Expedia public, as well as future companies Zillow and Glassdoor. Barton funded Expedia via external investment.
I personally funded Credo out of my own SEO consulting. In fact, I didn’t pay myself a dime from the LLC for 9 months, and only then wrote myself a check for ~$500/mo for the previous nine months. Now Credo supports a team of 5 and has paid me a full time salary since 2018. I funded Credo through its own revenue and my consulting.
So when I get the question about funding a business or funding a marketing campaign, I like to think through the possibilities for it because there are so many different ways.
The questions that I receive that led me to write this post include:
- How do I fund my small business?
- How do I fund a business with no money?
- Which is the best way to fund a business?
While I sincerely believe that there is no “best” way to fund your business, there are better and worse ways depending on your individual situation.
First let’s talk about the various ways one can fund a business, and then I’ll answer each of the above questions with my own advice.
Table of Contents
Ways to fund a business
First let’s talk about the main ways businesses get funded. There are three main ways.
Customer funding
The first way to fund your business is through its own revenue, which I call “customer funding”. This is what most people call “bootstrapping,” and means you fund the business out of its own revenue and reinvest that back into the business to grow it through people, marketing campaigns, product development, or a myriad of other things.
Customer funding is, in my mind, the most pure way to build a business. But, businesses at the beginning do not usually have the luxury of thinking philosophically about the business, as you’re just trying to survive long enough to succeed.
A lot of businesses can and do bootstrap to an extent, and it’s often the best way to do it if you can because it allows you to keep 100% control of the business. Nathan Barry from ConvertKit had some smart things to say about this when telling the story of not taking investment for the company:
The one person who instantly understood the market opportunity was @ttunguz from Redpoint. He was super generous with his time and said he’d happily invest, but suggested that I might prefer staying bootstrapped.
Combined with advice from @MikeMcDerment I decided not to raise.
— Nathan Barry (@nathanbarry) January 18, 2021
Another job or source of income
The second way to fund your business is through another job or source of income. This can include:
- A full time job that pays you enough to let you work on your business on the side without immense pressure to make it successful straight away
- Another source of income like consulting (how I funded Credo) that only requires some of your time and leaves the rest to working on your other business
- A spouse who works and makes enough to give you the freedom to work on your business. This can also allow a mental freedom that others don’t have.
This is the most common way people do it. Even Nathan Barry (mentioned above) had a successful career as an independent creator selling infoproducts which gave him the cashflow he needed to bootstrap ConvertKit.
Outside investment
A third option is outside investment, which can include:
- Friends and family putting money into your business (this is how Rand Fishkin funded SparkToro)
- A bank loan (risky, hard to get sometimes)
- An accelerator like Indie.vc or TinySeed which gives you the income needed to let the venture have a chance of success
- Angel investors who often put in $300,000-$500,000 total for a percentage of the company
- Institutional venture capital
All five of these are viable ways to fund a company, though are riskier than the first two. If you’re able to get them, this often means others see some validity and promise in what you are doing and think you can make it a success.
You have to spend something
At the end of the day, you have to spend something. My old CEO Will Critchlow, from my agency days, taught me the framework of you have three things to spend:
- Time
- Money
- Expertise
Reality is that you usually can only spend two of them. Very few people have the time, money, and expertise needed from the outset to make a business work.
Most people have time and expertise, and are short on money. They spend their time and expertise with the goal of making money.
If you’re short on time, then you’re going to need expertise and money to pay others to get it done for you.
And if you’re short on expertise, you’re going to need money to hire those with it and time to learn it yourself.
Popular questions about funding a business
Now that we’ve established all of that, let’s answer each of the common questions I outlined at the start:
- How do I fund my small business?
- How do I fund a business with no money?
- Which is the best way to fund a business?
How do I fund my small business?
In order to fund your small business, you need time, expertise, and money. Many small businesses fund themselves through a combination of existing income through a full time job or another source like consulting, and gradually the new business starts to pay its own way and eventually hopefully overtakes its source of funding and becomes self-sustaining.
Bootstrapping usually means being very careful with cash and making smart reinvestments back into the business. The biggest pitfall to avoid is spending on things that make you feel good but don’t add value (aka revenue) to the business.
How do I fund a business with no money?
If you don’t have money and are committed to self-funding, then you’re going to need a combination of expertise and time to give the business enough time to work.
An alternative is finding external investment which can give you more time in the short term to spend on the business, which should give it a better chance at succeeding.
No money? You need expertise and time.
Which is the best way to fund a business?
There is no “best” way to fund a business. It’s like asking what color is the best.
Reality is that there are multiple ways to fund a business, and the one you choose will have its own pros and cons.
Bootstrapping? It’s going to take longer, the risk of being beaten by a competitor who is quicker to market is higher, and you might not be able to make it work in enough time. Pros are that you have complete control.
Self-funding? You’ll still need time and expertise, but it won’t be as mentally taxing as just bootstrapping. Most “bootstrapped” companies have founders who had another type of income.
Raising funds? You’ll get to market faster and likely have budget to put into marketing campaigns to learn faster than bootstrapping or self funding. Downside is that you are selling equity and ownership in your company.
How did you fund your business? What can other entrepreneurs learn from your journey?
