The businessmodels that you might want to adopt in starting up your home based business ranges from a bootstrap start-up to a heavily geared operation with heavy borrowings. I have categorized these business models into three distinct categories.
Bootstrapping
When you are starting a business without a shirt on your back and without a sen to your name, there is no choice for you but to start-up by 'bootstrapping'. The American term comes from the fact that a bootstrap costs 5 cents which reflects the cost of starting your business. Businesses like these are also called 'shoestring start-ups'.
The spirit of bootstrapping is to start-up with the minimum of costs, just enough to generate some profit which is reinvested into the business for further growth. Any profits generated later will be further reinvested until the business grows into a formidable size having a broader range of products and larger workforce. Self-financing is at the core of this model as no external funds are needed.
Take for example an entrepreneur who wants to start-up a publishing house but has no capital whatsoever. He can build his business from scratch by starting a bootstrap mail order information business. This business is operated by the entrepreneur selling an information manual or report of his or her creation. The orders for these manuals or reports are obtained by pulling inquiries from cheap classified ads. To avoid capital tied-up by inventory keeping, copies for sale are only printed upon receiving the orders. All in all, the mail order entrepreneur only needs to spend RM50 to kick-off the business to earn a net income of a few hundred ringgit. The mail order entrepreneur would then reinvest the net income into more ads and multiply his profits until it grows into a formidable operation. He might then have enough capital to self-publish and market his books and reinvest the profits to publish other writers' books. If you are interested to start-up a mail order information business, email me to request for detailed information.
Another example of a bootstrapping venture is a tuition broker business. This is perfect for bootstrapping because the entrepreneur only finds clients/students through low cost marketing media like classifieds, flyers and posters. The broker will already have a panel of tutors who will provide the tutoring. The broker charges a registration fee to the tutors and take a commission for every student/customer found. If the profits are carefully reinvested into the business, the tuition brokerage can use its already existing market base and grow into a full-blown tuition centre or even a college. See also my article "What Home Based Business Can You Start?".
Another situation where your bootstrap business can big is where you attract the attention of a big investor who might buy out or invest in your business. This might happen if you provide an exceptionally unique service or due to your special position, you have a foothold in a certain segment of the market. A friend of mine was working as a marketer for a multinational chemical company and had the opportunity to build valuable contacts all over the world. After making some money for himself in part-time trading, a big investor was interested enough to back him to set up a full-time trading firm with company car and all. You can find out the story from the man himself by emailing him.
However, this model assumes that you already have the basic equipment like a PC and handphone to run your business. If you don't but need to start your business in a hurry, outsource jobs like desktop publishing or typing which require a PC to freelancers or get a management service company to answer your calls. This will of course eat into your profits but taking the bootstrapping philosophy, your strategy should be to reinvest the profits into purchasing equipment later.
Leasing
As far as possible, I would encourage home based entrepreneurs not to incur any debts but in some instances it is necessary for you to do so to operate profitably. This is especially so when you have to use slightly expensive equipment in your business. For example, if you are interested in running a home based photocopying service, to purchase a photocopying machine might burn a RM12,000 hole in your pocket. So you have no choice but to lease the machine (with an option to buy at almost zero value) for RM300 a month and hope that your revenue from the business will cover the installments.
Borrow & Sweat
That is exactly what you do when you invest heavily in a business. However, there is no choice but to do this for certain type of businesses. These are businesses which I would stay away from because in my mind, if you are going to spend more than RM20,000 to start a business, you might as well start-up a conventional business outside home.
The guy whom I hired to help me move house started in this way. He spent about RM70,000 on the purchase of his lorry but somehow he still chooses to run it from home. Maybe this is the only business he knows due to his limited background as he is unaware of other alternatives which would allow him to start up for a lot less (which now should not be the case for you).
Conclusion
The bootstrapping model is definitely the best model that you should adopt in starting up your home based business. It is the only model which allows you to start-up tomorrow which is in fact, the essence of home based enterprise. Make it a point today to brainstorm the various ways you can start-up your business as a bootstrapper!
A. Mustaffa Yussof is a lawyer & marketer turned business consultant specialising in the area of home based businesses. He now runs workshops on "How To Start, Run and Profit From A Part-Time Home Based Business". He would be happy to answer any questions regarding running a home business by e-mail at atmus@yahoo.com. Some of the questions answered can be found at the Malaysian Small & Home Based Business Forum
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