Please note: this article was first published in December 2014.
If you have a brilliant idea but a tiny budget, you can start your own business. But you’ll need to start small, work hard and spend wisely. REDnews talked to 3 Kiwi entrepreneurs who started their businesses on a shoestring, and asked them how they did it.
Start with a cheap prototype
Will your idea work? You need to start with a prototype, and it doesn’t have to cost a lot of money.
When Bianca Richardson’s infant daughter kept escaping from her car seat, Richardson came up with the idea for the Houdini Stop. She created her first prototype using some elastic and the clips from a pair of braces, all purchased from Spotlight for about $30. Once she knew it would work, she created a batch of 30 Houdini Stops at a cost of just $50.
Now Richardson sells 90,000 Houdini Stops each year, all over the globe. That success has allowed her to develop 3 new products, although she says she still starts with the tightest budget possible – the prototype Houdini Door was made of cardboard.
Obviously, not all good ideas can be prototyped in cardboard. But even with a much more complex item, it can be possible to start on a shoestring.
BioBrew launched its flagship product, a probiotic supplement for dairy cows, in 2009 – although ‘launched’ is probably too grand a word for what really happened.
“We put a couple of hundred dollars’ worth of kit onto a Visa card and started with that,” says managing director Andre Prassinos. “It was the classic Kiwi start-up, out of a 2-car garage in a little rural section just out of Christchurch. What we spent to begin with would have been a few thousands of dollars. I took it to the farmers in the back of my car with a simple ‘try before you buy’ proposition, and we’ve kept many of those customers to this day.”
Call in some favours
When you haven’t got much to spend, you’re going to need some help. Who do you know who can supply you at mates’ rates? Who will give you a hand with packing up product or delivering it on time? Who will help you create a website?
Picnic Box creator Diane Stanbra used her savings to fund the business when she started it in 2011, and initially relied on friends and family to help her hand-stamp her packaging and assemble the boxes of food, while her niece built the original website.
“We were all doing it for the love of it,” she says. “It was just a case of buying stock, a few hundred dollars’ worth, and hopefully getting some money back from sales. Fortunately we got sales on day one, although it didn’t all go to plan.”
Now all her casual workers are paid for their time, and she’s running a profitable enterprise, but without her original team of helpers Stanbra wouldn’t still be in business.
Save on marketing and promotion
Support from your family is essential, but you’ll also need support from your customers to create a word-of-mouth marketing campaign. One area where shoestring start-ups rarely spend money is marketing and promotion – relying instead on social media, customer testimonials and old-fashioned face-to-face relationship building.
At BioBrew, Prassinos still relies heavily on word of mouth advertising among his clients: “We had no money for advertising, or for a sales team, or for a PR person. We had a small core of customers who had been given samples, and their support and testimonials jump-started the products. We turned to our loyal customers and said ‘Please help us grow this business’, and they have. We’ve got into several niche equestrian communities with our EquiBrew and they’ve passed the word around – now we’ve got a tiger by the tail.”
Free samples were also a powerful marketing tool for Picnic Box: Stanbra has found that carefully targeted giveaways are the most cost-effective form of promotion.
“We’re approached all the time to do big expensive ads,” she says. “I say, ‘We don’t have the money for that, but if you want Picnic Boxes for photo shoots, or anything else, we’re happy to help’.”
Know when to splash out
Successfully running a shoestring start-up means spending wisely. Usually that’s finding a bargain, but sometimes it means knowing when a big spend will pay dividends.
For Stanbra it was professional food photography – when she saw the results, she was so happy she burst into tears, and the photos have boosted the business far in excess of what they cost.
She also broke open the piggy bank to buy an old trailer off TradeMe and have it professionally signwritten; it cost $17,000, but she couldn’t have got her product out to the public without it.
Good professional advice can also pay off in spades, as Stanbra has found out. For her the vital expertise has come from her Icehouse mentors and her accountant – both have been expensive, but rapidly paid for themselves in increased profitability. She now has orders of up to 1,000 Picnic Boxes on a busy Saturday; “it’s beyond anything I could have dreamed of, and it’s made all the pain worthwhile.”
The make-or-break spend for Richardson was having her product crash-tested in Australia. It cost $4,000, and if the Houdini Stop had failed, she would have been out of business. But it passed, and the product was suddenly acceptable to a whole new category of high-end retailers.
Prassinos will be spending a substantial amount of money on travel in 2015, as he goes to the US to launch EquiBrew and to China to find production partners in the dairy industry. Spending money on establishing the products internationally is likely to pay massive dividends for this small New Zealand business.
“We’re standing shoulder to shoulder with some multibillion-dollar businesses,” says Prassinos, “and we’re producing something that is vastly more effective than people have come to expect.”
Build on your success, your own way
For the founders of each of these three shoestring start-ups, tight purse strings might be challenging, but they come with their own valuable reward: independence.
The 3 companies all run on tight, lean budgets with little or no debt. This allows their owners to create high-value businesses where they can make all the decisions.
“You’re not accountable to a lender or an investor,” says Prassinos. “We’re free to pursue product development the way we want to.”
Richardson agrees, and adds that she wouldn’t have done it any other way: “I poured everything I earned into the company for 3 years, and now I have a solid base, so if I did shut the doors, I wouldn’t owe anybody a dollar.
“It’s hard work, but the benefits and the payoff in the end are way better than working for someone else.”