Want To Be An Entrepreneur? No Need for Initial Capital

In several emerging economies business is mainly run by entrepreneurs. They are men and women, often below 44 years old, who see growth opportunities in challenging situations. In other words, they represent the backbone of their economy.

However, their road to the market is often paved with obstacles, especially when they attempt to take innovative solutions to it. On one side, the difficult financial situation of the region, the typical risk aversion of banks and the increasing competition in getting business angels and investors on-board, are often translated into lack of capital to start up (figure 1).

Figure 1. Problem tree

On the other, entrepreneurial initiatives often go hand-in-hand with fear of failure and, even worse, of running up debts. In this scenario, the loser is not only the entrepreneur, who steps back or experiences deep frustration, but also the economy,  that is missing potential growth opportunities.

Our society is commonly based on the belief that capital is essential to start a business. Several activities have as a target investors instead of customers.  But is there a way to reduce or avoid the effort in initial fundraising?

Sharing, sharing, sharing

Based on the wide-spread diffusion of digital technologies, today companies and individuals can share their underutilized assets, from cars (Turo) to spare rooms (Couchsurfing), from boats (Sailogy) to medical equipment (Cohealo). Sharing enables a win-win situation, where unnecessary investments can be avoided and value, in terms of money, time and experience, is generated. So what?

Also entrepreneurs benefit from the sharing economy. Co-working spaces are an increasing phenomenon among freelancers, business owners and the so called “internet nomads” (workers with no fixed base). Space providers usually propose a flexible revenue model, with co-workers paying per hour, day, week or month – not to own a desk but to use it.

However, co-working spaces are ideal for entrepreneurs in service and online industries, where most of the activities require only laptop and WiFi. But what about those who want to build a physical product? What if Stephanie, young entrepreneur based in Lagos, wants to manufacture a new fashion line made of organic fiber? Is fundraising the first, critical step?

The Airbnb for supply chains

Not in Lagos! Stephanie can make use of WOCO, the ultimate level of the sharing economy: they match entrepreneurs with asset owners, in order to cover the whole supply chain for the development of a new product. Thanks to WOCO, Stephanie can select the necessary steps to produce and sell her fashion line, from end to end. How? She books one of the time-slots made available by each essential asset owner. Together with her experienced team, she can finally have access to design studios, production machinery and tools, as well as dedicated shelfs at the retailer.

Source: WOCO, www.wocollective.com

By utilizing  external assets, Stephanie doesn’t need to initiate her business with big investments in machinery, raw material, equipment, warehouse and retail. The same is true for many physical industries, where finding resources is usually very consuming, both in terms of money and time. In particular for new businesses, which face high uncertainty and risks.

Although WOCO is a very recent initiative, it counts already over 300 subscribers and several successful matchmakings in Lagos. This is the evidence that in a continent where young entrepreneurs are the promise of a brighter future, everyone should have the chance to venture into a new business.

Lowering the fear of failure

Solutions like WOCO generate value for multiple players in the economy, in Lagos and in other more or less developed regions (figure 2):

Entrepreneur – innovative minds don’t need to primarily focus on fundraising to jump into a new business. They have instead the opportunity to develop new products in a rapid and agile way, being free to experiment, fail and try again. This flexible and iterative way of doing business helps to lower the fear of failure for the entrepreneur, since the money loss would be minimal. This is particularly relevant for very sophisticated and expensive assets: the “pay-per-use” model enables utilisation of these resources, otherwise not accessible.

Asset owner – warehouses, machinery, equipment…these resources need to create value. Companies owning these assets but using them under their capacity are wasting potential. By offering their space, objects and time to entrepreneurs, they can count on a new revenue source. Also, investments into new resources become less risky: their underutilization could be filled by renting them out.

Figure 2. Solution bridge – added value for each player involved

Government – Lowering the fear of failure of entrepreneurs means encouraging their attempts to start new businesses. This is essential for emerging economies, where existing challenges need to be addressed in a viable and sustainable way. The match between entrepreneurs and assets owners does not require extraordinary investments from the public sector. It requires instead incentives and regulations that optimize this match. The big win for governments is the chance to see solid and validated businesses growing, side-by-side with new job opportunities.

Bank & Investor – investors, especially banks, need evidence to take informed decisions. Investing in later stages of an entrepreneurial initiative means lowering the risk of loss: solutions like WOCO help to rapidly test feasibility, viability and desirability of a certain product. Also, lending money to assets owners would be more predictable, as the resource could be rented out if underutilized.

Open questions

Trust – as promising as it sounds, there might be challenges of trust, openness and availability. All players need to have high levels of initial trust to each other, that the resources offered are functioning and handled with care. How could we increase reliability and clear accountability in the process?

Competition – assets owners would be probably skeptical to rent out their resources to entrepreneurs targeting  the same or a similar market. How can we avoid this “paradox”?

Acknowledgements:

We are grateful to Shaïna Silva for sharing her brilliant idea with us. With this post we hope to trigger new initiatives to turn WOCO and similar services into impactful solutions.

Credits:
Icons in problem tree and solution bridge: Tomas Knopp, The Noun Project

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