Nuts & Bolts: Small-time capital

Monica Signer

TEXT OF STORY

Lisa Napoli: And now our series continues on the nuts and bolts of building a small business. Ideas of course are one thing. Finding the money to make them happen is another. Steve Tripoli at the Entrepreneurship Desk has been finding there are lots of different approaches.


[SOUND: Theme song of "Super Mario Bros." video game]

Steve Tripoli: Oh, if they could just start over.

In Seattle, Daniel Hornal creates and sells personalized ringtones for cell phones. You're hearing one now.

He's been searching for start-up capital, and like many entrepreneurs at this stage, he's beginning to second-guess the way he's done it.

Daniel Hornal: Well I'd start earlier. I wish I had talked to more people earlier, I wish I hadn't operated under the illusion that I wouldn't need a lot of capital.

Hornal's start-up is cash-starved. And his increasingly urgent money chase is sapping energy he needs to fend off ringtone competitors.

Hornal: Because somebody else is going to do it. And somebody who's got some advantage over you is gonna do it.

Big start-ups can grab venture capital and tiny ones get government help. But Hornal says many cash-seeking small businesses are stuck in between.

In Berthoud, Colo., Monica Signer and her partners sold their own assets to launch their dog kennels and riding stable. After that, they carefully tapped so-called "friends and family" money.

Signer recognizes that borrowing from acquaintances carries special burdens.

Monica Signer: You want to make sure, obviously, you don't want to jeopardize your friendship, and you want to make sure to be able to honor your commitments. What was very successful for us was to wait until we knew that we had income coming in before we approached an acquaintance.

On Long Island in New York, Brian Prince runs two web-based businesses: a search engine and an online hotel reservation site. He says when he's seeking capital, there's no substitute for feeding potential investors loads of well-written details.

Brian Prince: Mapping out the actual business strategy, how you plan on protecting the funds to make sure that you don't just burn through 'em. Not a business plan, but more of an overview of the idea.

Our small business expert for this series, Patti Greene from Babson College, says Brian Prince is giving potential investors something extra with all those details.

Patti Greene: In reality, he's selling himself this way as much as he's selling the idea of the enterprise. He's selling that he's thought through what are the risks, what are the contingencies.

And Greene says that Daniel Hornal, the ringtone guy, is learning a hard lesson by having an up-and-running business with no financing pipeline in place.

Greene: You should be thinking about always having your pipeline kind of planned out in your head. But it means you have to really understand what are you trying to get done, and then you can figure out how much money do you actually need.

One last thought from Brian Prince on Long Island: He says it's smart to get your investors deeply involved.

Prince: Have them be mouthpieces, evangelists for the business, Get them using the business, have them telling their friends and family about the business. Involve them in the business of marketing, of sales, of feedback.

After all, what better resource than people who literally have a stake?

I'm Steve Tripoli for Marketplace.

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