With limited options for external financing, this article discusses three strategies Caribbean businesses can use to increase their viability, along with their chances of securing funding when needed.<\/em><\/p>\n
Consider this scenario: an individual has an idea for a business. He\/she is excited about it and believes that it will be a successful venture. However, there is a catch. They do not have the money to start the business, which would they believe would require in excess of USD\u00a0100,000, and they are looking for someone to finance it. Why might this situation be problematic to prospective investors?<\/p>\n
First, and at the moment, the business is just an idea. Further and in most instances, rigorous market research has not been undertaken to substantiate the concept. Additionally, when one examines the proposed budget more closely, a significant portion of it has been allocated to pay the business owner\/entrepreneur a salary at the level to which he\/she has become accustomed. This posture can be a red flag to an investor, as the business owner appears to have invested very little in the business, is not bearing any risk, but wants others to trust that the idea will work and finance not only the proposed venture, but the life of the business owner as well.<\/p>\n
Another approach that tends to increase the likelihood of an idea moving to a working model, is to bootstrap the business \u2013 that is start the business on a shoestring budget and stretch the needed resources as far as one can. Hence when the bells and whistles are eliminated from a USD100,000\u2014plus budget, one might need only USD\u00a05,000 to actually launch the business and to begin to gain some first-hand insight on the true viability of product or services being offered.<\/p>\n
More importantly, should one eventually need additional financing \u2013 even from a commercial bank \u2013 the business would not be just a nebulous idea. It would have been in operation, and one can point to its track record to date and speak from a position of authority on the situation at hand to support the need.<\/p>\n
In tandem with bootstrapping a business, it is also recommended that as the business grows that it be kept lean and agile. In the tech space in particular, the approach that has been adopted by most of the global brands is that product development is an iterative process. It is no longer expected that a product must be absolutely perfect from its initial release. There must be scope for it to evolve and to improve, for example, based on new technologies, and changing customer need.<\/p>\n
In the widely lauded The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses<\/a><\/em>, the concept of businesses remaining lean, but more importantly being agile to foster innovation is explained.\u00a0 It also is a proponent of the \u2018minimum viable product\u2019, which is an iterative approach of developing ideas and testing products, which entrepreneurs and small business owners can adopt.<\/p>\n
Finally, in addition to commercial banks, most countries across the region are beginning to encourage and foster alternative sources of financing for small businesses. These include micro-lending agencies, angel investors and venture capital initiatives, and even grant funding. Where those exist, persons are encouraged to investigate them and determine whether or not, or the extent to which they are in a position to offer the desired support.<\/p>\n
However, there are also options internationally such as crowdfunding and seeking international investors (angels, venture capitalists, grant foundations, etc.) that can also be considered. However, to be successful with those routes, the business concept may need to have far-reaching appeal, and be shown to be highly viable. Further, should the financing agency have an emphasis, for example on supporting poverty reduction, then projects that are aligned with those efforts may tend to have better a chance of receiving the needed support.<\/p>\n
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Image credits: \u00a0William Warby<\/a> (flickr)<\/em><\/p>\n
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