12172017

Crazy or Crazy Like a Fox? When You Self-Fund Your Business

Photo credit: SOUTHERNTraveler/Shutterstock

In this article, I go in depth about our decision to self-fund our business and share the seven main lessons you should keep in mind for self-funding.

Self-funding your business is not for the faint of heart, trust me. In the seven years it took me, my wife and our business partner to get our business off the ground, we took out 15 credit cards, refinanced our house three times … and didn’t get a single customer for three years. Still, looking back on that long, bumpy road, I wouldn’t change a thing. 

The kernel of an idea 

I’ve always been driven by that mix of individualism and (probably too much) optimism that is the hallmark of an entrepreneur. Even in my early years, I knew I wanted to run my own business. After I finished my university schooling, I took a job at an insurance company, but I never lost that drive to work for myself. I fell in love with the idea of the software-as-a-service business model, which was just bubbling up in the business zeitgeist at the time. 

That was around 2001. For a couple of years, my wife, Laurie, and I tossed around ideas for our own SaaS business. Eventually, we came up with a software solution that would make it simple and easy for maintenance managers to track and fulfill work orders. In 2003, we were ready to start what would eventually become our company, Maintenance Care. We just had one problem – we needed money! 

Seeking angel investors

One of the biggest decisions any business owner has to make is whether or not to self-fund. Seeking funding from outside sources definitely offers compelling advantages, but the drawbacks can be steep as well. When Laurie and I decided to really make a go at our business, we did initially reach out to both angel investors and venture capitalists. I mean, who wouldn’t like a nice big pile of cash to start out with?

However, each meeting left us less enthusiastic. We did receive some interest, but the investors wanted too much of our company for too little money. Laurie and I had to confront a big question: Did we want to give away a significant portion of ownership to make the early days a little easier? 

We knew that if we declined the investment offers, the road to success was going to be longer and harder, but the payoff would also be bigger in the end. For me, the most important thing was maintaining control of my company and vision. I didn’t want to give that away.

Banks don’t like you when you have no money

After making the decision to say goodbye to our investor offers, our next stop was the bank. All my entrepreneurial optimism didn’t get us very far. Despite the fact that we had a sound business plan and a clear road to revenue, the banks weren’t impressed. I was sure that when we sought a loan from a business development bank, we would get approved. After all, that’s what they’re there for.

Nope. No loan. All these years later, now that Maintenance Care is highly profitable and growing fast, the banks are practically knocking down our doors to offer loans. I learned that the best way to qualify for a business loan is to not actually need one.

After Laurie and I were denied business loans at nearly every bank in our area, we faced a harsh reality. If we wanted to get Maintenance Care off the ground, we were going to have to do it on our own. The decision to self-fund was scary, but it also motivated us, because we had serious skin in the game. The road was long and hard, and there were many doubts along the way, but we eventually made it.

Looking back, here are some of the most important tips I would give to an entrepreneur considering self-funding.

1. Pay as few people as possible in the beginning.

The No. 1 thing that prevented Maintenance Care from dying on the vine was the fact that I was able to convince a developer from my insurance company named Zbigniew Chlopek to join Laurie and myself as a co-owner of the company. Z built the Maintenance Care software from scratch and made hundreds of tweaks and revisions to it over the years. If we had been forced to pay a normal developer’s rates for all that work, we would have been sunk. Laurie and I also gave significant time to the business. Laurie handled all the operations of the company, and I took charge of the marketing and sales. 

2. Maintain outside income.

The three of us worked without pay for years – yes, YEARS – while all holding down full-time jobs. We had to in order to keep the company going and pay our mortgages. Going “all in” would have given us a lot more time to grow the company, but we also would have burned through our savings in no time. All in all, it took eight years until Laurie, Z and I were able to transition to Maintenance Care full time. 

3. Be flexible.

Those years working full time at the insurance company while trying to get Maintenance Care off the ground were some of the most difficult of my life. My boss expected me to be at my desk during normal business hours, but I also needed to pitch clients for Maintenance Care, and our customers expected me to be available during the day. 

Finally, I devised a solution that my boss couldn’t refuse. I offered to work as an independent contractor for the insurance company at a much lower rate than what I was making. My boss was more than happy to get the same work for less money, and I finally had the flexibility to take care of our Maintenance Care clients. 

4. Pay your bills.

You’ll be amazed at how fast money disappears when you start a business. As I mentioned, Laurie and I took out 15 credit cards and refinanced our house three times as we worked to make Maintenance Care profitable. There were months when it was a real struggle to pay the minimums on those cards and make our mortgage payments, but we always found a way to do it. By paying our bills, we maintained good credit, which allowed us to open up more cards or refinance when we needed to. Those credit lines were a lifesaver. 

5. Get as much credit as you can.

Laurie reminded me of this tip. When you’re starting out, ask the bank to increase your credit lines on your cards. Consider refinancing and taking out equity on your home even if you don’t think you need to, especially if you qualify for a low interest rate. As you open more credit cards and accrue debt, your credit score will go down. When you switch from a full-time job to self-employment, your income may drop significantly or even go negative. When this happens, banks won’t want to touch you with a 10-foot pole. 

6. Find happiness in the little victories.

If you decide to self-fund, your journey is almost certainly going to be longer than if you took a helping hand from a venture capitalist. You may face years of struggle, like I did. In those years, really savor the small victories. Enjoy bringing on that first client, receiving that first check, and that day when your books finally turn from red to black. These are the things that will keep you going and keep you hungry as you push through setbacks and doubts.

7. Be patient.

Let me remind you that it took three years – THREE YEARS – before Maintenance Care got its first customer. That meant three years of putting in work on the business in the morning, at night and on our lunch breaks without any income. Because we decided to self-fund, all three of us had to work conventional jobs for years. This limited the time we could work on our business and slowed our growth. It took us seven years to achieve positive cash flow. Could we have gotten there sooner if we’d taken a big check from a venture capitalist? Probably, but then we wouldn’t fully own our company. We’d have to ask permission to pursue the direction we wanted.

Ultimately, we gave up a lot by self-funding. Laurie and I put most of the equity of our house into the business and ran up debt on over a dozen credit cards. For years, we couldn’t eat out at fancy restaurants or take nice vacations. We got less sleep than we needed and couldn’t take many relaxing weekends, but I believe we made the right decision. Today, Maintenance Care has over 150,000 users, and we’ve seen growth of over 40 percent each year for the last five years. 

If your goal is to build a business as fast as possible and then sell it for a nice payday, then self-funding probably isn’t right for you. If you want to own your business – all the challenges and the successes – then self-funding might be the way to go if you have the stomach for it. For Maintenance Care, and for Laurie and myself, self-funding was the right decision.

 

 

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