Funding is a highly contentious issue, both in South Africa and
around the world. Start-ups want it, and more often than not
funders won't give it. They want to see established businesses with
a track record - and start-ups have neither.
That's reality, and no amount of begging and pleading will
change the rules. According to Lebo Gunguluza, self-made
millionaire, entrepreneur and founder of the South African Black
Entrepreneurs Forum (SABEF), perhaps it isn't the system that needs
to change, but rather the mindset of young entrepreneurs.
Funding isn't free
"There are three big funding misconceptions that
entrepreneurs need to address in order to successfully launch a
business without a loan," says Gunguluza. "The first is the
perception that 'funding', particularly government funding, is the
same as grants.
Grants you do not need to pay back. Loans you do. This means you
need to show revenue - you need to prove you can pay the loan back.
Too many young entrepreneurs do not understand this.
They think funding is for free. They do not put a proper
business plan together that shows where their revenue will come
from because they do not take into account that they need to pay
that money back."
This leads directly to Gunguluza's second point - if funding is
not 'free', and it needs to be paid back - with interest - then do
you really want it?
Generate your own funds
"Businesses entering a stage of expansion
need funding to facilitate growth," says Gunguluza. "The
same is not always true of start-ups. Loans need to be paid back,
and this can actually be crippling for a start-up, especially
if the entrepreneur has focused on securing money to facilitate a
perceived lifestyle rather than to pour into the business.
Those loans will need to be paid back, and if the business is
not performing well and generating revenue, this might prove to be
incredibly difficult for the start-up that is only breaking
Gunguluza's advice? Why pay for something you can get paid for?
"If you can pre-sell a service or product, and get a deposit to
help you deliver on it, why secure a loan?
Loans cost you money because you are also paying interest on
them. Why not rather use your skills to make sales and generate
your start-up funds yourself? If you apply your mind on your trade
- and business is a trade - you shouldn't need funding,
particularly if you are in the services industry."
Gunguluza shares a valuable example of a woman who applied for
funding to produce matric jackets, but actually secured orders and
deposits for the jackets before her funding came through.
The deposits were enough to produce the jackets, and they were
made, delivered and paid for in full before the funding cleared.
"She didn't need the funding. She thought she did, but simply
through applying her trade and pre-selling her product, she was
able to launch her business herself."
Lifestyle vs business
Finally, Gunguluza warns entrepreneurs to start a business and
apply for funding for the right reasons. "I have met many
entrepreneurs who are not passionate about business, but see
funding for a business as a means to a particular lifestyle.
They manage to secure funding and instead of pouring it into
their business, they spend it on houses and cars and maintaining an
image. If you aren't producing anything with that money, it will
come to an end - and how will you pay it back? Similarly, if you
don't want it to grow a real, sustainable business, don't even try
to secure it.
"You will end up in a worse position than you started in. If you
want to make a success of a business - with or without funding -
you have to really want that business to succeed. It shouldn't only
be about the money."
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