I was recently asked this question at an event I was having by someone looking to start their own business. Obviously the answer depends upon what kind of business you intend to start although I told her that regardless of the business, I believe that you should have about $50,000 in order to start your business.
$50,000?!?!? She balked. I could see the surprise in her eyes. She said, "I don't think it would take that much to start a business." Without batting an eye, I responded, "You're right. It doesn't take that much to start a business. In order to run a successful business you should plan on about that much though."
I could see in her face that she didn't agree with a word I said. I'm not sure if you do either.
One of Steven Covey's habits of highly successful people (he wrote 8 of them - 7 in one book and then the 8th habit in another book) is to first seek to understand and then be understood. Now I've been in business for over 10 years, so I knew exactly where she was coming from and understood her position. In fact, I've started several businesses with less than $50,000 myself. None of them have been easy and unfortunately, some of them didn't last very long either. So absolutely, it can take less than $50,000 to start a business.
Most MLM's or Multi-Level Marketing companies like Amway, Herbalife, Mary Kay, Visalus, Mona-Vie, and many, many others cost much less than $50,000 to get started. Did you know that the failure rate for most of those companies is also about 90%. In fact, of the 10% that do stay in business, about 80% of those barely even make enough money to cover their expenses. I'm not sure I would call that a "successful" business. Of course everyone's definition of success is different although in business, your goal should be to make more money than you're spending.
So how did I come up with $50,000?
Well, most franchises start at about $25,000 - $50,000 and that's just the franchise fee. Then you add on the cost of the materials, products, training, and many times, physical location and you're near or over $100,000. On the flip side, about 90% of franchisees succeed! That's quite a difference from network marketers.
So what's the difference?
The difference really isn't the money. The difference is the commitment level that it takes to come up with the money. You see, if you start a business for $500 and the going gets tough, it's pretty easy to walk away from it. If you spend $50,000 to start up a business, most people would work their derrière off to keep it going.
In addition, just because it costs $500 to get started, it doesn't mean that you don't have to put in more money to keep it going. Here are some costs which people commonly overlook when starting in a business.
- Advertising and Marketing materials - This alone could be $1,000 or more a month depending on what you're doing. TV advertising isn't very cheap and neither is radio. If you're going the guerrilla marketing method with flyers and such, you can get results - it just takes more effort.
- Technology costs like a computer, a cell phone, a business phone, a fax line, and software programs like QuickBooks, websites, website hosting, domain names, email and more. Depending on your business, this too can add up.
- Location costs for business meetings and events. Some businesses require physical locations which cost money. Hotel conference rooms aren't cheap. Having your own office and meeting with clients is priceless really.
- Professional fees for attorneys for contracts, patents, copyrights, and more. Accountants for taxes and business structure setups. Your typical attorney can cost $250 - $500 an hour.
- Travel expenses - especially if you're flying to different areas of the country for conferences and trainings.
- Branding materials like clothing items, book bags, pens, pencils, notepads,etc.
- And there's a lot more too
Add up all the above and within your first year of a $500 business you've probably spent closer to $10,000 or more. If you're still in business the second year, then you'll probably spend even more. By the time all is said and done, you've probably spent at least $50,000.
Now if you would have planned for that $50,000 upfront, how different would your business have been? One of my mentors has even been known to say that most businesses cost $500 to get started and should cost $50,000 if you quit. Then maybe you won't quit!
While it's not always true that the more you spend the more committed you are, it often times is the case. In fact, many times when you get something for free, you don't value it at all. So my answer to this budding business owner was really two fold.
First, when you plan for and have a budget of $50,000 to begin with, you automatically start focusing on what you need to do in order to make that money back. In addition, it also gives you the flexibility to invest in the right things to get your business started off correctly. Instead of skimping on marketing materials by making your own flyers of buying a cheap shirt and doing an iron-on of your business logo, you're not afraid to invest in quality handouts, a press kit, and an embroidered shirt. Why? Because it's part of your business plan and you know the return you'll get by investing in the right things.
Second, when you plan for and budget for $50,000 upfront, you're making a bigger commitment to success. This won't be a fly by night business. It's something you're committed to doing and something you're going to work hard at succeeding. You'll be more likely to make certain sacrifices like watching less television and instead, working on your business. Your mindset will be in a totally different space - a space of success.
So how much does it cost to start a business? Again, that's entirely up to you and yes, I know many people that have succeeded with less than $50,000. Of course I know many more that haven't. The bottom line is that if you're thinking about starting a business, make sure you put in the work ahead of time and plan it out right... and then work your behind off to make it succeed.
As Henry Ford once said, "If you think you can or you think you can't, you're right."