Introduction of Crowdfunding to South Africa

With the introduction of crowdfunding to South Africa recently through StartMe, which helps entrepreneurs, creative projects and community initiatives to raise money, normally at levels where angel investors and venture capital firms don't get involved in,we can safely assume that the business finance landscape has changed for good.

With banks increasingly hesitant to support these projects especially where there may be no track record of success as proof, have we finally found a way to address this crucial need of money for start-up projects to succeed?


I’ve often said that I suspect that over the average person’s lifetime they will have probably spent about three years untangling headphones. It’s exasperating! When I heard about Flux Headphones that use tiny magnets to keep cords untangled, I was intrigued not just by their ingenuity but by the way the inventor is trying to bring the product to market. It’s called crowdfunding and it's just the thing for inventors in San Jose and the rest of Silicon Valley.

Crowdfunding uses the vastness and the power of the Web for entrepreneurs to solicit donations from people to fund their idea. Other crowdfunding sites for entrepreneurs include Kickstarter and Peerbackers. Crowdfunding is also used to raise money for political causes, to support artists, indie films and for charities. According to Wikipedia, crowdfunding can be used to attract business investors giving small amounts, in exchange for equity in the fledgling business, under a provision in the federal JOBS Act, which was signed into law in April by President Barack Obama.

Matt Scandora, the inventor of Flux Headphones, pitched his idea on the Web site Fundable.com, which features his product and other products and services by entrepreneurs seeking funding. It contains a two-and-a-half minute video on Flux Headphones, notes the amount of money Scandora is hoping to raise -- $45,000 -- the amount raised so far, $5,000 the last time I checked, and the number of days left for people to invest.

Unlike under the federal law, investors in Fundable.com do not get an equity stake in the business; instead they earn “rewards,” which can be redeemed for gifts from the entrepreneur. It could be something as token as a t-shirt or a free version of the product being developed, like the tangle-free headphones.

By the way, Flux Headphones work with several tiny magnets embedded in the main part of the cord before it splits off into the two ear buds. The video shows a runner wrapping the cord around their wrist when not in use and then unwrapping it when they plan to use the headphones. Flux Headphones only work on Apple products, including the iPhone, iPad and iPod.

Fundable only awards money pledged by backers if they meet their fundraising goal, which forces entrepreneurs to set realistic goals for a particular milestone, such as beginning production of the Flux Headphone. It does allow entrepreneurs to keep extra money if donations exceed their stated goals.

Another crowdfunding site called Kickstarter has the same approach as Fundable. Kickstarter’s mission is to fund “projects such as making an album, a book, or a work of art,” according to its Web site. While it is not intended to start a business, a project can include creating a product. It funds projects in a wide number of areas including art, dance, fashion, film, music or technology. It also has a long list of projects it won't fund, including political candidates, pornography, firearms or multi-level or pyramid marketing schemes, just to name a few.

So as South Africa now finally has its own crowdfunding platform, will we see the same level of involvement from the public in contributing to these projects as we have seen elsewhere, or are we as South Africans just not quite at the stage where we are happy to support someone who we have not quote yet met in person?

Crowdfunding as an Alternative Funding Source

Most business owners today all face the problem of securing business finance.  Almost any entrepreneur with a business plan who have done their research know about the pros and cons of venture capitalists and angel investors.  But these two sources of funds are not the solution for most people.  They typically require you to show you have a proven track record of success in your field and have already established a back of target customers to draw from.  What happens if you don't meet these requirements?  How do you fund your project?

Standard Funding Sources

Very few project are able to be funded by venture capitalists and angel investors as start-up companies.  Because of this what normally happens is the entrepreneur will put together a list of his friends and family and ask them for “donations” to the project.  They will spread the word to their friends and business networks and help to get the project off the ground.  But normally the person starting the project is putting in the overwhelming majority of his/her own money to keep the project alive.  They will take out loans, mortgage their homes, max out their credit cards or do anything they can to get the cash they need to keep the project running.

As if it wasn't hard enough to get funding for a start-up businesses project, the recent downturn in the economy and the financial markets have made banks even more cautious when lending money.  If you do not have an established reputation with your bank or lender then there is almost no way they are now going to take a chance on you or your project.

However there is still hope.  History has shown us that when certain avenues of finance are closed, new ones inevitably open up. This is the case with Crowdfunding in it's various incarnations.  It has become an alternative funding source for many eager entrepreneurs to get their project on solid financial ground.

The Alternative Funding Sources

Many new, alternative ways of raising capital have emerged that are able to help people looking for financial backing find the people who have the money to do so.  Some of the more common types of alternative financing are Microfinance, Peer-to-Peer Lending, Crowdfunding and Social Media.

Microfinance

Microfinance was brought about by Nobel Prize winner and founder of the Grameen Bank, Mohammed Yunus.  Microfinancing is a type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Many of these microfinancing companies have focused their resources in third world countries.

Crowdfunding

This finance model involves getting people to fund your project through websites designed to attract philanthropic investors.  This concept has worked particularly well for musicians and for the theater groups looking to get their plays off the ground.  If you have a musical or theatrical project and need funding to make it a reality then crowdfunding allows you to reach the masses and people who support your project can donate to your cause.

Peer-to-Peer Lending:

Peer to Peer lending occurs directly between individuals or "peers" without the intermediation of a traditional financial institution. Peer-to-Peer lending (also known as person-to-person lending) is for the most part a for-profit activity.  This distinguishes it from charities, philanthropy and crowdfunding which also create connections between donors and recipients of donations but are nonprofit movements.  There are some established Peer-to-Peer websites available such as Prosper and Lending Club.  However this option may not be available to everyone since you still need to meet certain minimum finance and credit requirements. However it is still not as difficult as getting a loan from a traditional bank.  The standards are much easier to meet.

When SHOULDN’T You Use a Sample Business Plan?

If you thought that a sample business plan can help you in EVERY instance where business plan writing is required, you might be surprised to learn that it isn’t.  There are certain situations where using a sample plan won’t give you the best results.  Here are a few of those.

If the Investor You Are Approaching, Has Specific Requirements

Often, investors will have a specific format or list of requirements that you need to fulfil when submitting a plan. If you veer off that list of requirements when you submit your plan, you run the risk of irritating the investor, and that’s the last thing you want to do.

If you’re considering submitting a plan to any specific investor or VC company, you want to make sure that you follow their requirements to the letter.  Which means that even if you think your awesome idea requires fifty pages to fully be explained, if they want ten, you’re going to need to whittle it down!

If Your Business Is Completely New and Unique

If your business idea is so new, and so cutting edge, that it’s never been done before, then you probably won’t find a sample business plan that matches it.  You may, however, find one that’s similar, or you could use a combination of a few sample business plans for complimentary industries to mix and match the sections you need for your own plan.

Always remember that a sample business plan is a guideline – and that you can use more than one to get all the sections you need for a particular business type.  You don’t have to follow them religiously, and you don’t need to use only one.

If You Don’t Have An Idea Yet

A sample business plan can do many things – but it cannot give you good ideas! Don’t start looking for sample business plans, books on business planning, business plan templates or anything else until you have a solid idea.  For one thing, you won’t be able to find the right sample, and for another, it’s impossible to do the amount of research necessary to craft a decent plan if you have no idea what you’ll be doing!

If you’re still looking for ideas, you’d do better to look on business forums on the internet, or even take a drive around your neighbourhood, to see what’s missing.

If You Don’t Feel Comfortable Creating Your Own Plan

If you’re sure you can’t create your own business plan, either because you can’t write, or you just don’t think you have the skill, then a sample business plan alone probably isn’t the solution.

Consider business planning software, hiring a freelancer, or a business planning template instead. All of those options will give you a little more help, and help to ensure that the final product is what you want.

Plenty of Business Plan Help and Tools

The good news is that there are plenty of business planning tools, tips and professionals out there, and no matter what your idea or your budget, you should be able to find something that will help you create the plan that will kick-start your business.

Treat it as a process, start small and work at it steadily, and by the time you are finished, you should have a business plan that will open doors for you!

My advice for young aspiring entrepreneurs? Go for it.

"If your idea is so great, why haven't you committed to it? Why should anyone invest and risk my money, if you're not even fully committed?" anon investor.


With millions of people every day thinking of new ideas, lying awake at night with the thoughts of what could be and how life could be different, the real difference between those who dream and those who do is the action element. Whether your action is successful the first time round is in many ways beside the point. The key to any success ever achieved is that an idea was set into action and that a high level of commitment supported that action.

Where does this leave you?

If you are a young entrepreneur you have likely wondered how to get your idea off the ground. How and where do you start? Will your concept even be marketable? Will you fail? How much risk is involved and what can you do to reduce that risk?

These are some of the questions I faced when my co-founder, Jennifer Hymann, and I were launching Rent the Runway two years ago.

Sure, entrepreneurship is intimidating, but the reward is not just in building a successful company; it is in the lessons and growth you acquire every day just by doing, trying — and yes — failing. Here are some strategies to transform a simple idea into a viable, revenue-generating business.

1.Test the Marketplace

When you have an idea you are passionate about, get out there and test it with your consumer. Be open to feedback and honest with yourself when you need to tweak your concept or go back to the mat entirely. Writing a business plan is a waste of time, in my opinion. Focus efforts on casting a wide net and speaking to as many people as possible about your business concept. In my case, my co-founder Jenn Hymann, and I talked to women about renting dresses and watched our consumer interact with our product through a series of tests. We purchased dresses at retail and set up a pop-up shop at a Harvard undergrad dorm to test our idea. Taking risks (and yes, even failing) is part of entrepreneurship, but each test you do mitigates some of the risk.

2.Show by Example

By testing the marketplace effectively you will obtain data you can present to future investors. You have to take into consideration that these investors may not personally relate to your concept and that you must find ways to engage them. One way is through videos, customer testimonials and data from marketplace trials. Using these mediums, we were able to convince investors to partner with Rent the Runway, even when we were pitching our concept to a room full of men.

3.Build a Team

Find people to work with who compliment your strengths and weaknesses. Part of being a successful businesswoman is recognizing what you do well and where you need support. Having a partner whose skills complimented my own was the first key step for me. Beyond that, we realized we needed to build out a team that brought expertise in technology and fashion, since neither of us had a background in either. As important as it is to build your business with people who specialize in areas crucial to your business success, equally important in the early stages is hiring well-rounded employees. In the beginning phases of a startup your team will need to wear many hats and tackle unanticipated challenges, so a “roll up your sleeves attitude” is essential.

4.Realize that “No” means “Not Right Now”

A big part of being an entrepreneur is becoming comfortable with hearing the word “no” and having the creativity to adapt your idea to overcome any issues. I’ve learned that “No” usually doesn’t mean “no,” it just means “not right now.” In starting Rent the Runway we heard a lot of “no’s” and that just encouraged us to stay motivated to rethink, tweak and keep testing our concept. There are lots of ups and downs in entrepreneurship as not everyone will love your idea, but each negative response is an opportunity to learn and adapt. A great partner and a supportive team can also be helpful in getting through what are sure to be some challenging times.

Why Free Business Plan Templates Aren’t Always a Good Idea

When you’re looking for business plan templates, you’ll probably come across umpteen sites that offer free business plan templates, and if you are like most people, you’ll probably be sorely tempted to try them. After all, free is most people’s favorite price range! Often you may be better of using professional business plan services to get your business plan done and kick your business of in the right way.

However, while even free business plan templates can be useful when writing a business plan, they may not be the solution to all your business-planning problems.

Here are just a few of the reasons why you should think twice before you choose a free business plan template.

Accuracy

When you pay for business plan templates, or software, you’re dealing with a company, who employs professionals to ensure that their business plan templates and software is free of any possible errors. They spend time and money on research and development, to make sure that they business plan templates and tools they offer are as accurate as they can possibly be.

When you use paid for business plan templates, you can also query the accuracy of the template you are using, which means if you pick up a discrepancy, it can be repaired.

Content

Free business plan templates do not always contain all of the information you need to include in yours. Since leaving important information out of your business plan could be the thing that sinks your hopes of finding funding, that means that when you use a free business plan template, you still have to check, manually, that you have included everything necessary in your plan.

That is not necessarily a bad thing – if you have the time to go through the business plan you have created using a template, but it is something you might want to bear in mind.

Relevancy

There are many things to consider when it comes to the relevancy that you get from a business plan template – whether it is a free one or a paid for one.

First, there is the question of whether it is geographically relevant. Most parts of a business plan are the same around the world, however, there may be specific legal and other requirements that are geographically relevant to you, and not in the template you’re using (or vice versa.) Again, regardless of which template you use, you will need to ensure this.

You will also need to ensure that the business plan template you use allows you to convert the financial sections of the plan into your local currency, or the currency you plan to use in your business plan. The numbers may not change, but it will look unprofessional if you do not even have the right currency symbol on your plan!

Finally, there is the type of business you are writing a business plan for. There are plenty of generic free business plan templates out there, but in most cases, having a business plan template based on a business idea that most closely matches your own is a much better idea, and easier to use!

If you can find a business plan that is as close as possible to the business you are planning to start, you will be able to modify and alter it quickly and easily.

What is Best for You?

If you need to write a business plan, and don’t know where to start, and if you don’t have the budget to spend on business plan services or templates, then free business plan templates can be a great thing.

However, you must bear in mind the old saying ‘you get what you pay for.’ A free business plan template is a great tool, but it still requires a large amount of input from you, if it is going to give you the results you want. If you can afford to buy a high quality, tailored business plan template, then you will have a solution that will save you time and frustration – but either way, it’s up to you, and your needs and circumstances.

Do You Need Business Plan services?

When you are faced with the task of writing a business plan, you are going to get a lot of advice. Some people will give you links to websites (which may or may not have helpful information), some will suggest using professional business plan services, and others will tell you that business plan software is the way to go.

If you are wondering whether you need business plan software, then this article should help you to decide.

Have You Written a Business Plan Before?

Plenty of people who have written business plans before still use business plan software – it is a great tool, and it speeds things up. However, you also need to remember that while they choose to use business plan software because it is convenient, writing business plans is a lot like riding a bicycle. If you practice enough, you get the hang of it, and then you never forget the tricks!

However, if it’s your first time writing a business plan, then business plan software becomes more than just a tool. That is because the first time you write a business plan is scary, confusing, time consuming and frustrating! Either you can use that as a learning experience (if you have the time), or you can use business plan software, and take a little of the ‘learning’ out of the equation!

Do You Have Time to Do It Yourself?

Writing a business plan yourself, from scratch, is always possible. However, it takes time. You would be surprised at how often would be entrepreneurs mention their idea in passing, and are asked for a plan. That is great – when you have one – but if you have not finished (or started) your plan yet, putting one together in a rush is daunting, to say the least.

If you do not have the time to spend the weeks or months involved in creating a business plan from scratch, and polishing it to the best it can be, then it may be an idea to use business plan software, and take some of the time consuming, frustrating bits out of the equation.

Are You a Procrastinator?

Often, we spend our time in an endless loop, gathering information, brainstorming ideas, and planning our business plan. So much so, in fact, that we never actually get to writing the business plan itself!

Because business plan software makes the business planning software a logical, chronological process, it makes it infinitely harder to put off writing your plan, because you’re too busy preparing to write your plan!

Does Writing Your Plan, or Your Financials, Scare You?

Many people (most people who write a business plan in fact) are worried about writing their plan, doing their financials, or both.

Business planning software takes the guesswork out of writing a business plan, which takes the fear out of the process. If you use business plan software, you really only have to put the information asked for in, and you will get a professional, correct business plan out at the end. It is like having an accountant and a business expert on call, all the time.

Business Plan Software Can Help Most Entrepreneurs

The truth is, when it comes to the question of who business plan software can help, the answer is most entrepreneurs. If you are in any way unsure of what should go into your plan, or how, or if you need a little help, it is a cheaper, effective answer to the problem.

Do some research, find a good business plan services that suits your needs and your budget, and you are guaranteed to have an easier time writing your business plan.

What Are Business Grants, and Are They An Option?

Many small business owners out there have probably wondered what small business grants are, and whether they are a financing option for their new business venture. In this article, we look at what small business grants are, and how they can help your business plan to get funded.

What Are Business Grants?

Business grants are usually either from government, or from individual companies, usually as a part of a corporate social responsibility program.

Often, business grants don’t come in the form of cash, but rather in the form of equipment, tools, or other physical items that your business may need to get started. For instance, if you are planning to start a carpentry business, you might find business grants that will buy you machinery and tools that you need to start your business. There are also business grants that pay for specific training that you might need.

Who Qualifies for Business Grants?

Business grants are usually issued as a part of a social upliftment program, by government or businesses. That means that there are usually strict criteria about who qualifies.

In some cases, those criteria may be that the company is owned by a person from a specific group (BEE ownership for instance, or ownership by a woman.) Other criteria may be that the company will be operating in a rural area, where jobs are scarce, or that a certain number of jobs will be created, often for an underprivileged group.

Most companies and government departments that offer business grants will have their own criteria for selecting recipients, so you will need to contact each one individually, to find out whether you qualify?

What About Cash Grants?

As mentioned, in most cases, business grants won’t be for cash funding. That’s usually because the company or department that are offering the grant want to be sure that the people receiving them are genuinely committed to starting a business, and won’t use the funding for personal items!

In some cases, however, business grants are available to companies that have already received an order that they lack the capital to complete on their own. In those cases, you will need to provide proof that you have received a valid, irrevocable order, and some form of surety. You may also need to undergo a credit check.

Some business grants are also structured as loans, where you are required to repay the money you receive, albeit with a longer term, and relaxed conditions. Make sure that you find all of this out before accepting a business grant, to avoid nasty surprises later on!

Is It Worth It?

Getting a business grant is not an easy process – and with good reason. The companies and government departments who offer them want to be sure that they’re helping serious business people, rather than people who are just looking for easy money.

That’s also why business grants often come in the form of equipment or other items, rather than cash. However, while finding and qualifying for business grants can be difficult, and while you will probably not receive cash in your hand, business grants can be exactly the leg up that new business owners need.

So if you’re serious about starting your business, it’s definitely worth investigating the business grants that are on offer to your industry, area, race group or gender from government and big business. It might be just the boost that your business needs!

How to Start a Business

If you sit at your desk every day, dreaming of being your own boss, and earning more money while also not having to work for someone else, then you’re probably just a few steps away from taking the plunge and becoming an entrepreneur. However, while most people have those thoughts, going from dreaming, to figuring out how to start a business is what sets true entrepreneurs apart from everything else.

The good news, if you’re wondering how to start a business, is that the process is the same for just about every business, in every industry. In this article, we look at the steps that will take you from dreaming to owning your own business.

1. The Idea

Every new business is born because of one thing: the idea. Without an idea, you cannot have a business. You cannot follow any of the other steps in this article, and you’ll be dreaming at your desk forever!

Business ideas can come from anywhere: they could be based on a need that you’ve identified, or they could be a brand new invention, product, or service. More often, however, business ideas aren’t breaking new ground. They’re based on existing products, services, or ideas. So if you don’t already have a business idea, think about what you’d like to do, and what kind of business you think would work well in your community.

2. The Plan

Once you’ve decided what your business idea is, the next step is to work on your business plan. That means doing as much research as possible, learning how to create a business plan for a new business, collecting ideas and information, and putting it all together in your own business plan.

A business plan is a road map to success, and something that every new business should have, so make sure that you devote enough time to crafting a well thought out and viable business plan for your business idea.

3. Finance

Once you’ve created a business plan based on your idea, you will have a good idea of what it will cost to start your dream new business. That should also give you an indication of the amount of capital you will need. Consider whether you will be self-funding or bootstrapping your business, or whether you will need to seek outside finance. Investigate the various financing options for your new business, and approach companies or individuals who can help.

Business finance is not always easy to come by, but if you want to start your business badly enough, and you have a great idea and a solid business plan, and you persevere, you should find a way to make it happen.

4. Hard Work

Once you’ve found the perfect business idea, written a business plan, and secured financing, the hard work really starts! Entrepreneurs are some of the hardest working people out there, and if you thought being your own boss would be relaxing and stress free, think again!

In fact, for the first few years at least, you will probably work harder on starting and building your new business than you ever worked for any boss! Of course, you will also be richly rewarded for all of that hard work when your business takes off, but prepare yourself for a long hard slog!

Every small business out there will follow the same basic steps from idea to organisation. Those who have done it before are more likely to use business plan services to create the a professional business plan. The process may take a little longer in some cases, and you will certainly learn a lot while you’re starting your business. However, there’s no denying that owning your own business is one of the most rewarding things out there, so if you’re determined to be your own boss, stop dreaming and start doing!

Where to Find Help With Writing a Business Plan

If you have a great business idea, you probably already know that you’re going to need a business plan. Whether you’re looking for funding, or you just want to start your business with a solid idea of where you are going, having everything on paper is a great place to start.

However, for the average entrepreneur, writing a business plan is not as simple as it sounds. If you need help with writing a business plan, then read on. In this article, we discuss where you can find the help you need, and what you can expect.

Small Business Incubators

There are several options out there when it comes to small business incubators, and many of them are government run, and therefore free to use.

Small business incubators are programs that are set up to help new business owners to start and run their businesses. Many offer assistance with writing business plans as a part of their service, and they usually have a team of experts on hand for just that reason. Nearly every city and town will have some form of small business incubator program, and you can usually find out more from your local chamber of commerce, or online.

Accountants

Many small business owners find that they don’t need help with writing a business plan, so much as they need help preparing financials for their plan. If you’re going to use your business plan to apply for funding, then you will almost certainly need a well-written, well thought out plan, including accurate financials.

Hiring an accountant to help you to write the financials section of your plan is therefore a good idea. Most accountants will have a good working knowledge about small business finance, and can help you to create a financial plan that’s well thought out and viable, so it’s often worth the expense!

Freelance Writers

If it’s not the financials you’re struggling with, but you need help with the actual writing of your business plan, then freelance writers are a great resource. There are freelance writers in just about every city or town, and you can even find them online! Most will be able to take your business plan idea and outline, and give it the polish it needs to impress investors, but remember, you will still need to write the plan yourself, so that it’s your ideas that go onto the final document!

Business Students

Another great idea, particularly if you are short of cash, and can’t afford professional services to help you write your business plan, is to approach business students at your local college or university. Most final year students have in depth business knowledge, and will be willing to offer you a consulting service at a fraction of what a professional would charge!

Business Planning Software and Templates

Possibly one of the simplest options, in terms of time and effort, when you’re looking for help writing a business plan, is to invest in business planning software and templates. These vary in complexity and functionality, but most offer some form of interface where you enter your business information and other parameters, and the software does the hard work for you.

Whichever option you choose when you’re looking for help writing a business plan, remember that this is probably the single most important document for your business start up. Whether you use it to secure funding, or simply as a road map to success, your business plan really can make or break your business. So take enough time, consider investing financially to make it as perfect as possible, and you should get the best possible result.