From time to time I visit my friend Shaun Furman's website millionairementorstoday.com and I watch him answer one or two questions from newbie investors/entrepreneurs that ask him questions about getting started in business.
On Shaun's site, one of his viewers asked "How do I start a business with no start up capital?" - A brilliant question. Many entrepreneurs start out with little or no money (that's how I started, with only $1200 dollars) and Freedomway Joint Ventures was started this year in February with literally under $100.
Fundamentally in business there are two types of businesses 1) Production based businesses and 2) Distribution based businesses.
Many entrepreneurs (including myself) make the mistake of jumping into a production based business without even knowing it and soon find themselves needing huge capital requirements to build/create/develop whatever their dream product is. After they spend the money or get a loan to "build the dream product that sells itself", they find there is no market for their creation and they die a horrible horrible death with their creditors (often their family members and friends).
I know this cycle because I have been through it many times myself, especially in the music industry.
If you are starting a business, THE BEST model you can pursue is a Distribution based business. A distribution based business is great for a beginner right to advanced entrepreneur because:
- They can leverage and use other people's proven products and systems,
- They need FAR less capital or even no capital to start
- The velocity of the business is higher (they can sell units on day one and earn revenue)
- They can leverage teams and systems faster because they are not bogged down in production,
- They are easier to finance, if financing is required,
- The owner only has to focus on marketing/branding of the product and SELLING which is where ALL businesses make ALL of their money.
If you look at some of the biggest and best businesses in the world, Walmart for example, they are a distributor only. They white label a few products, but they are one of the world's biggest distributors of consumer goods. They do billions and billions of transactions a year (high velocity).
Richard Branson and Virgin is another prime example. Branson has over 400 companies all called "Virgin" that distribute different liscenced products and services. His company produces literally nothing, but markets everything. Branson started as a distributor of records and built a very healthy distribution channel in his early days. Today, EVERYTHING from his cell phone contracts for his mobile brand to his planes in his airline are all leased and only marketed and distributed through his mother brand. Why own? That's a ridiculous idea... Own nothing, control and sell everything.
Notice that Coca-Cola bottling companies are split up into separate regional distributors who distribute the product and DO NOT (I REPEAT DO NOT) produce the Coca-Cola formula. That is held by a separate "producer" company.
In my own business, I am making rapid changes from being an all-in-one "producer and distributor" with low velocity to creating two high velocity distributor divisions that will become my primary focus and my production line will slowly introduce products to my channels as we grow.
Below is the formula for "easy and low risk" success in business, write it down.
1) Build a distribution channel (this usually means a database, if you don't have one, you're not a business - you are a joke).
2) Sell other people's products first.
3) With your capital start funnelling in your own "production" line on a test.
4) If you find that you have success with your own product in your distribution line, then continue funnelling in your products for the highest rewards possible in your business. You will be making 3-7 profit centres guaranteed if you can pull this off and will have insane profits.
5) If your own product doesn't do well, cancel it fast, or change it fast and continue being a distributor with a steady cash-flow.
If you do this right, you literally cannot lose. You don't actually start investing capital or money until you decide to get to step 3, which many people never do and quite frankly, never have to do if they are good at step 1 and 2.
NEXT PARAGRAPH IS FOR NOVICE REAL ESTATE INVESTORS ONLY;
For all of the real estate people out there, if I could start again in real estate, I would start as a bird-dog and then a wholesaler. Those are excellent distribution businesses and I am approached weekly by novice investors with no cash who want to get started. I set them up with my bird dog package and tell them to some "bring me deals". Some of these novice investors bring me deals and get paid $500 to $5000 a lead... Some don't bring me anything and waste my time and resources. You can make a very good income as a bird dog, then you graduate to a wholesaler, after you have your distribution channel ready you can start rehabbing and distributing your "own" products.
But please, promise me you won't make the mistakes I've made in the past by jumping into production right away OR you will have 700 copies of a Alternative Rock CD sitting in your basement looking for a home.
Thanks for reading,
Serial Entrepreneur, Real Estate Investor, Artist