Financing, Business Plans and Other Scary Things: Part 2 of our Start Up Journey
Lisa and I do not have a background in business. We are Speech Language Pathologists...what business do we have venturing into...well, business? Here is something we learned about each other very early on: we are tenacious, and sometimes that's all you need. Once we made up our minds that we were going to do this nothing was going to get in our way.
One of the first things we did when we found a little office space was to hang up quotes about doubt, fear and perseverance. We knew we were going to need all the encouragement in the world to get through this. There is also a benefit to having a partner. We not only bring different skillsets to the table but we balance the doubt and keep each other accountable.
"Ideas without action are worthless." -Harvey MacKay
Two of my favorite things to say are "be resourceful" and "be a problem solver". Running a startup requires these mindsets. You don't have to know everything on day one but you do need to have the drive and ability to find the answers. Here are some of the things we have learned in our first year.
You don't need to pay LegalZoom to establish an LLC. Creating an LLC was our first order of business. I don't think we thought we would be a real business until we had one. Since we had no idea what we were doing we paid LegalZoom, rather than going directly through the state (Arizona Corporation Commission) and filing the paperwork ourselves. We have since learned that it's rather easy and way less expensive this way!
You don't need a business plan unless you are seeking funding. Lisa and I had no idea if we were going to need $10,000 or $100,000 to create our web app, and we certainly had no idea where we were going to get the money from. Lisa had spoken with a family member, a business professor, that suggested we speak to a retired executive from SCORE to learn about funding options and business plans. We learned a lot about business plans and actually created a pretty good one. What we didn't walk away with was any funding sources. We naively believed that there were banks and organizations, like the Small Business Administration, that gave loans to start-ups...and they might. But based on what we learned getting a loan was probably not going to happen for us. On to plan B.
A website developer is not the same thing as an application developer. Ha! We were so green in this department that we really didn't know the difference. We initially thought we were going to build an iOS app, but a friend suggested we look into a web based application as it may be cheaper initially and would work well within a Software as a Service (SaaS) framework. So after we decided that was the direction we were going to go, I started researching website developers. When I finally got ahold of a live person, and explained to him our brilliant idea for an app, he informed me that he builds websites and that I would need to go to an app developer. I still didn't know the difference but took the number of a company he referred me too.
Find a developer that lives in your time zone. Now that I knew to Google search web app developer versus website developer I found a few local companies to contact. Finding someone local was very important to us. We wanted to be able to meet in person and communicate regularly. I first called the company referred to me by the website developer and asked to set up a meeting. They were not interested in an in person meeting and had me pitch my idea over the phone. After stumbling over our genius idea, I was politely told that we were too small of a project for them. This one kind of shocked me :) I didn't expect to get turned down! But they nicely referred me to another local developer. I contacted him and after some hesitation and hem hawing we set a date to meet. I then went back to my Google search, and a local company that I hadn't seen before on any of my previous searches popped up. When I explored their website I was immediately impressed! There was so much information and they actually had a price and breakdown of what we would get for that price on their website! This was the first time we had a ball park of what this was going to cost us. I emailed the company, Get Boundless, and Paul emailed back and agreed to sit down with us the next day!
Not all developers are created equally. We were so nervous for our first in person meeting with a developer! We clearly didn't know anything about how this works, and prayed they would understand our idea. The first thing Paul asked when we met with him was why did we want to go into business. We gave him our answer about helping people and blah blah, and he said no, why do you want to run a business. Here's the thing we learned in that moment. Anyone can have a great idea but not everyone can start and run a business. Paul was asking because he wanted to know if we understood what we were getting into. Creating the app was the easy part, selling it is a whole other ballgame. We liked Paul immediately. We left that meeting knowing his company was going to develop our app. We would have signed on the dotted line right there but didn't want to be impulsive :) We had survived on our instinct up until this point so we felt really good about this, but there was still this other guy we had scheduled a meeting with later that week and we wanted to do our due diligence. We got back to our office and started Google stalking the other company. Lisa came across their blog and the very first article that we read talked about how they were changing their business model and wanted to work with established companies or individuals that knew what they were doing. They no longer wanted to hand hold inexperienced startups. Ummmm, seriously? Hand holding was EXACTLY what we were looking for! We knew based on that blog post that this company was not the one for us. We emailed them immediately, cancelled our meeting, and then emailed Boundless and asked them to send over the quote.
Apps are not free. After we signed on to work with Boundless we needed to find $30,000.00. I can tell you this: Lisa and I are not heirs to a fortune, nor did we even have a dime in our savings account :) We knew that a bank wasn't going to give us a loan and we weren't a tech startup in Silicon Valley that was either going to receive seed funding or knew how to code and do the work ourselves. We had asked the developer how most people funded a start up and he said that it was very common to borrow money from family. That just didn't seem like a feasible option for us. Our parents would have helped us if they were in a position to but they weren't, and neither of us were going to ask our extended families who did have money. I decided I would ask my family for advice on how to find the money, so I started with my grandpa who created a men's clothing store 50 years ago from nothing. I wanted to find out how he was able to find the money to open up his store. He told me that a woman he knew gave him a small loan and that he was expected to pay back only the interest on the loan until the business was successful enough to start paying back the principal. We talked about my business and he gave me some advice about being a business owner and our conversation ended. Later that day he called me back and said, "Sarah, I would like to give you a loan for $6,000.00. You will need to write up a loan agreement. I would like 5% interest, to be paid quarterly, until you make a profit and then you can pay back the original loan after that." Lisa and I couldn't believe it! We knew in that moment we were going to get the money we needed! The fact that he believed in us enough to give us a loan was just the motivation we needed to find the rest!
Some Debt is Good Debt We never want to tell anyone starting up a business to do what we did to get the money we needed, but it worked for us and we would do it all again. We truly didn't know we had any other option than to be self funded, especially in the beginning, and we are grateful that we are! Had someone offered us money in the beginning for a large stake of equity we probably would have done it and that would have been a huge mistake. After we received the loan from my grandpa, we started looking at other potential sources. Between the two of us we had about $30,000 in open credit. We were going to use this as a last resort but it was there if we needed it. I also had my husband look into borrowing against his 401K, and he was able to borrow $10,000. I had a whole life insurance policy that I was able to borrow another $13,000.00 from. Again, we don't know if this is the smartest way to start a business. Tapping out your credit cards and borrowing against retirement is scary and risky. But here's the deal, we knew without a shadow of a doubt that we were going to do what it took to make this business successful and not doing it was going to be far worse!
When you have an idea, the most important piece of advice we can give is to just start. Take action on your dream, believe it can be done, and do it. The pieces will fall into place. You are smarter, braver, and more tenacious than you can ever know. Sometimes you just need the right challenge for these traits to fully surface.
Stay tuned for Part 3: Building an app is the easy part...