Author Topic: Capital Intensive Businesses?  (Read 2262 times)

Xlar

  • Stubble
  • **
  • Posts: 132
Capital Intensive Businesses?
« on: October 23, 2017, 10:34:06 AM »
Seems like a lot of startups need very low amounts of capital to start, software, etc. Then once they have a product they are able to get more funding because they have something to show for their effort so far.

I've been doing some Googling but haven't been able to figure this out so I apologize if this is a dumb question!

How to businesses that need lots of capital to begin start? Does the owner have to come up with the full amount? Think someone building a gas station or a manufacturing firm where 1+ million is required just to start. Is there some avenue for getting such large bank loans or investors?

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 1858
Re: Capital Intensive Businesses?
« Reply #1 on: October 23, 2017, 12:42:45 PM »
Start small, cash and carry, and gradually build the business.
I know of quite a few large businesses that were started in the garage by some dude with an idea and a strong work ethic.

Heck .... just look at what Bill Gates did.

Xlar

  • Stubble
  • **
  • Posts: 132
Re: Capital Intensive Businesses?
« Reply #2 on: October 23, 2017, 02:00:44 PM »
Start small, cash and carry, and gradually build the business.
I know of quite a few large businesses that were started in the garage by some dude with an idea and a strong work ethic.

Heck .... just look at what Bill Gates did.

Yeah, that makes sense. You just need a business idea that can start small. If you have to start big for the idea to work then you need to wait until you've saved enough from your W2 job.

The only funny part is that by the time I've saved enough from my W2 job I'll be FIRE and won't want to risk all my assets starting up a company! Worst case I have to start all over again with a W2, best case I have more than I need to FIRE... Not much of an upside at that point!

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 2803
  • Location: WDC
Re: Capital Intensive Businesses?
« Reply #3 on: October 23, 2017, 02:13:15 PM »
Look for any parts that can be accomplished with software instead of hardware.  Even if it's a SW prototype, it's so much easier to design, build, and modify in software than in a manufactured product. 

If that doesn't work, get a solid business plan and find investors or get a business loan.

Xlar

  • Stubble
  • **
  • Posts: 132
Re: Capital Intensive Businesses?
« Reply #4 on: October 23, 2017, 03:40:21 PM »
Look for any parts that can be accomplished with software instead of hardware.  Even if it's a SW prototype, it's so much easier to design, build, and modify in software than in a manufactured product. 

If that doesn't work, get a solid business plan and find investors or get a business loan.

Definitely, as much software an planning ahead of time as possible!

So if you have a solid business plan there are places out there that you could get a loan from? You wouldn't need to come up with 100% yourself, more like 30%?
THanks!

bwall

  • Bristles
  • ***
  • Posts: 452
Re: Capital Intensive Businesses?
« Reply #5 on: October 23, 2017, 03:49:13 PM »
Look for any parts that can be accomplished with software instead of hardware.  Even if it's a SW prototype, it's so much easier to design, build, and modify in software than in a manufactured product. 

If that doesn't work, get a solid business plan and find investors or get a business loan.

Definitely, as much software an planning ahead of time as possible!

So if you have a solid business plan there are places out there that you could get a loan from? You wouldn't need to come up with 100% yourself, more like 30%?
THanks!

More like 30% interest rate.

Although it is made for television, the show "Shark Tank" gives you a good idea of valuation, ownership and loans for barely-proven business ideas. I recommend watching a few shows and seeing how they make calculations.

Xlar

  • Stubble
  • **
  • Posts: 132
Re: Capital Intensive Businesses?
« Reply #6 on: October 23, 2017, 04:05:47 PM »
Look for any parts that can be accomplished with software instead of hardware.  Even if it's a SW prototype, it's so much easier to design, build, and modify in software than in a manufactured product. 

If that doesn't work, get a solid business plan and find investors or get a business loan.

Definitely, as much software an planning ahead of time as possible!

So if you have a solid business plan there are places out there that you could get a loan from? You wouldn't need to come up with 100% yourself, more like 30%?
THanks!

More like 30% interest rate.

Although it is made for television, the show "Shark Tank" gives you a good idea of valuation, ownership and loans for barely-proven business ideas. I recommend watching a few shows and seeing how they make calculations.

That makes sense. It's super risky to invest in an barely-proven business idea let alone one that isn't proven at all!

What about if one wanted to get into an industry that already existed and has solid price history to go off of but you think that you have an idea that gives you a competitive advantage that they cannot easily replicate?
I think this would still seem super risky from a lenders perspective, correct?

Now if your idea needed lots of capital to buy equipment but that equipment retained it's value fairly well that might be easier to get loans for since if you default then they could sell the equipment, right?

bwall

  • Bristles
  • ***
  • Posts: 452
Re: Capital Intensive Businesses?
« Reply #7 on: October 23, 2017, 06:04:02 PM »
That makes sense. It's super risky to invest in an barely-proven business idea let alone one that isn't proven at all!

What about if one wanted to get into an industry that already existed and has solid price history to go off of but you think that you have an idea that gives you a competitive advantage that they cannot easily replicate?
I think this would still seem super risky from a lenders perspective, correct?

Now if your idea needed lots of capital to buy equipment but that equipment retained it's value fairly well that might be easier to get loans for since if you default then they could sell the equipment, right?

You have described perfectly a barely proven business idea.

Generally, used equipment sells for pennies on the dollar. In fact, a good way to get started in business is to buy used equipment very cheaply. But, lenders won't give you money to buy something that will be worthless if your business goes under.

For example, what does a slightly used barbeque grill cost vs a new one? Huge depreciation for . . .. no real reason? And that is for something that you can easily find a home for. Capital equipment, not so much.

Xlar

  • Stubble
  • **
  • Posts: 132
Re: Capital Intensive Businesses?
« Reply #8 on: October 23, 2017, 06:20:54 PM »
That makes sense. It's super risky to invest in an barely-proven business idea let alone one that isn't proven at all!

What about if one wanted to get into an industry that already existed and has solid price history to go off of but you think that you have an idea that gives you a competitive advantage that they cannot easily replicate?
I think this would still seem super risky from a lenders perspective, correct?

Now if your idea needed lots of capital to buy equipment but that equipment retained it's value fairly well that might be easier to get loans for since if you default then they could sell the equipment, right?

You have described perfectly a barely proven business idea.

Generally, used equipment sells for pennies on the dollar. In fact, a good way to get started in business is to buy used equipment very cheaply. But, lenders won't give you money to buy something that will be worthless if your business goes under.

For example, what does a slightly used barbeque grill cost vs a new one? Huge depreciation for . . .. no real reason? And that is for something that you can easily find a home for. Capital equipment, not so much.

That's exactly what I was thinking. So to start this kind of business one would need to already have quite a bit of capital. That's what my Googling showed, thank you very much to everyone for confirming and making sure that I wasn't missing anything!

AnnapolisMustachian

  • 5 O'Clock Shadow
  • *
  • Posts: 3
  • Location: Annapolis Maryland
Re: Capital Intensive Businesses?
« Reply #9 on: October 25, 2017, 07:47:28 AM »
     In order to reduce start up capital and the risk of a startup, you need to start out by create some thing called:
 the MVP or Minimum Viable Product
which mean you build your product or a modeling for your service as cheaply as possible so it will accurately represent your business idea.
And you can used this in most cases with a small investment to get an idea by showing it to potential customers to see if your product or service or even the idea will have any chance of succeeding .
 
    Once you have a sufficient amount of positive feed back to convince yourself about the viability of this cheaply built prototype you would then and only than would want to invest large amount of money, and once you have done all this then you would also be able to raise VC (venture capitalist) money.
« Last Edit: October 25, 2017, 07:56:02 AM by AnnapolisMustachian »

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 2803
  • Location: WDC
Re: Capital Intensive Businesses?
« Reply #10 on: October 25, 2017, 09:08:44 AM »
Do we have any idea whether starting this hypothetical business requires VC-level funding (a few million to start) or just a small loan?  There are all types of loans for small businesses.  Some are through venture capital firms, others through private banks, and more through the small business association. 

There are so many resources out there to learn more about what's available to small businesses and entrepreneurs.  When I started my business, I went to training and seminars at the Procurement Technical Assistance Program, which is run out of George Mason University.  They exist to help small businesses figure out how to work with and win business from State and Federal governments.  It helped enormously.  Some of the seminars they held exposed me to other programs, which I wouldn't have even known about. 

The point is, I would need to know a little more about your business idea, including the target market, to offer any better advice.  If it's as you describe, there should be no worry about describing it because others "cannot easily replicate". 

soupcxan

  • Stubble
  • **
  • Posts: 179
Re: Capital Intensive Businesses?
« Reply #11 on: October 25, 2017, 09:51:52 AM »
New ideas are a dime a dozen, execution is what is hard/unique.

jeebs1

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Capital Intensive Businesses?
« Reply #12 on: October 26, 2017, 07:48:58 PM »
I'm in a business that requires a fair amount of capital to start and it's funny to me how I ended up using a slow-burn long-time method that is very much like a mini-FIRE game in itself.
Saving, slowly purchasing equipment needed, building a network and client lists and nurturing relationships. 10 years later, and I have a company with equipment, relationships, clients, cash in the bank and credit lines available. Not the best approach for every industry or company, but for me, it really worked well since my business is also a passion and something I love to do. I think this method can work well for people who are trying to parlay a career into a business. I'm not sure if life is long enough to do this and reach FIRE at an impressively young age, but some businesses can move pretty quick, and it depends on what's important to you. What's enviable about MMM's position is that having hit FI very young he has more flexibility to try anything. If my business goes down, it's back to the drawing board. But, conversely, having no artificial cap on my income potential is a freedom I value, as well as the opportunity to employ friends and people I love working with.

I also have a friend who started a business requiring a large amount of working capital up-front and the route he took was to use his passion, excitement & energy, and frankly mind-blowing knowledge on his area of expertise to make a pitch to real investors for his product.
It worked for him, but it took a sizeable effort (mountain-moving, really) to get to the point where money was wired into their company's account, and now he essentially has a boss, but there really is no better option for some ideas.

99to1percent

  • 5 O'Clock Shadow
  • *
  • Posts: 30
    • https://99to1percent.com
Re: Capital Intensive Businesses?
« Reply #13 on: October 27, 2017, 11:25:43 AM »
I also prefer business ideas that require little capital. For example, we self-fund all our projects and are able to bring in $400K+/yr and on track to doubling it in the next 5 years or sooner.

SavingIsForSuckers

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Capital Intensive Businesses?
« Reply #14 on: October 31, 2017, 10:02:54 AM »
You can book a hotel conference room for a few hours and pitch your business plan to potential investors, sell equity up-front based on an estimated profit and loss model or you can get a small loan of one million dollars from a relative.

bwall

  • Bristles
  • ***
  • Posts: 452
Re: Capital Intensive Businesses?
« Reply #15 on: October 31, 2017, 11:04:00 AM »
You can book a hotel conference room for a few hours and pitch your business plan to potential investors, sell equity up-front based on an estimated profit and loss model or you can get a small loan of one million dollars from a relative.

If you did that, you could be worth billions one day. Billions. Just loaning out your name for projects. Not involved in the day to day, just branding.

Kroaler

  • Pencil Stache
  • ****
  • Posts: 750
  • Age: 27
  • Location: Greenville, South Carolina
Re: Capital Intensive Businesses?
« Reply #16 on: November 02, 2017, 12:10:43 PM »
You can book a hotel conference room for a few hours and pitch your business plan to potential investors, sell equity up-front based on an estimated profit and loss model or you can get a small loan of one million dollars from a relative.

I like the small loan of a million dollars reference.

OkieM

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Capital Intensive Businesses?
« Reply #17 on: November 02, 2017, 09:49:53 PM »
Having worked in oil in gas most of my career, which is enormously capital intensive, most people raise equity. You can solicit more local investors like your doctors and other rich people that want to diversify. But nowadays horizontal wells are so capital intensive ($5-10 Million per well) most people just go to New York and raise a few hundred million from private equity companies. Money pretty much just falls out of the sky if you can pair a leader with an engineer, geologist, and a few landman that are willing to sign a 500 page contract you’ll never understand.