I was recently interviewed by a local Tech Magazine, they asked me a question Can a small online business could also be setup with small investment? I wanted to blog about this topic.
I think the interpretation of investment is generally wrong. There is so much you invest in a business except for money. I like to think of investment in the following way
Investment#1: Time Investment#
You invest your time in a business. Time is the most precious thing for an entrepreneur; you must always weigh your options by an hourly rate. E.g. In my case one productive hour is worth $85 – $120. Now it is up to me that I am going to have 5 productive hours in a week or 20. I know people who are capable of working 30+ productive hours a week.
The giveaway here is to rate your productive hour and then find out how many productive hours you are going to spend over this business idea.
Investment#2: Monetary Investment#
This type of investment is purely about money and I can enlist more than 50 types of online business you can start without major monetary investment. Heck, when I started, total monetary investment was about 5,000PKR an year. Which was the cost of domain names and hosting account.
Investment#3: Psychological Investment#
This is a kind of investment, which no one ever talks about. No one tells you about how much invested you must be to come over psychological issues. Startups, entrepreneurship, ROI, MRR, running your own small business, are the new cool nowadays.
People like to brag about how they were kicked out of a university and how they started calling themselves college drop-outs while the real drop-outs, they should be inspired from were those who went to top universities like Harvard, Stanford and left them because their business outgrew before completion of their degrees.
But again, not to mention, I don’t really support the idea of dropping out pre-graduation. Other factors here involve how your friends and family react to this investment, where you choose not to work for an established business or government job and try to build something on your own.
There is more, but that’s a story for another day!
Another question was What factors do young entrepreneurs must take care of before setting up an online business?
My response: I think the only way I can answer this question right is by addressing the Risk Factor calculation. If you can calculate the risk factor then you make yourself able enough to validate your step towards entrepreneurship.
If I were to sum up how I calculate the risk factor then here is a simple formula. Let’s assume that;
- your monthly expenses are 25,000
- X = 25,000 x 12 = 300,000
Now think of X as the expenses you’ll have in first six months of running your own startup.
- Do, you have 300,000 (X) to be spent in first six months of your business?
- Can you generate at least another 300,000 (X) in first six months of your business to support up-coming six months?
Yes? Then What?#
If the answer to both these questions is a YES, then you have a feasible business idea. A good business plan is able to support you for at-least one year before you go bankrupt. This simple method allows you to keep re-evaluating yourself and your business. It also allows you to predict when your business becomes no more profitable.