May 1, 2025 • 34 mins
Starting a business takes more than just a good idea—you need a funding strategy that fits your goals, risk tolerance, and lifestyle. In this episode of Monkey Business Radio, we break down the four most common ways entrepreneurs get their ventures off the ground: bootstrapping with personal savings, acquiring debt, selling equity, and using a royalty-based model.
We talk candidly about the financial realities of starting small—selling off personal assets, living lean, and making trade-offs early to build long-term success. You’ll hear real-world stories, from founders who turned a few thousand dollars into multimillion-dollar companies, to legendary gambles like the FedEx founder’s last-ditch trip to Las Vegas.
We also dive into the unique appeal of royalty-based models like franchising—where you can own your business but benefit from systems, support, and a proven brand. If you’re exploring franchise ownership or looking for a smarter way to launch a service business, this episode offers practical insights, cautionary tales, and encouragement to help you make informed decisions.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris (00:03):
Hello, Welcome to Episode 12, Funding your Small Business
.
Today, we're diving into one ofthe biggest decisions any
entrepreneur can face how tofund a startup.
Taking on debt can be apowerful tool for growing
businesses, but it comes with aserious risk, as we say in this
episode.
I think it was Dave Ramsey saidyou know, before you take on
debt, make sure you know howyou're paying it back.
Huge your lender, not you ownsyour future.
(00:25):
In this episode, we break downdifferent funding strategies
Bootstrapping, taking on debt,bringing in investors,
royalty-based models, sharingpersonal experiences as well as
real-world examples ofbusinesses that made it big.
Whether you're launching asmall side hustle or aiming for
a multi-million dollar company,this episode will help you
(00:50):
navigate the financial choicesthat set your business up for
success.
We have a great episode for you, so grab a cup of coffee, sit
back, relax and welcome toMonkey Business Radio.
Hello everyone, Welcome toepisode 11, Funding your Small
Business.
And, as always, I'm here withDennis Siggins.
Dennis, how are you today?
Not too bad.
Chris, how are you doing?
Good, good, you know this is acritical subject to talk about
(01:13):
when you're funding your smallbusiness.
You know how you get startedreally kind of sets you for the
road ahead, so I'm going to diveright into it today.
There's a number of differentways of doing it.
You've probably, in your career, probably experienced a number
of them.
I certainly have hit a coupleof them myself.
So why don't we just kind ofdive in?
What do you have in mind today?
What are the different methods?
We're going to be discussing Alot of different methods.
Dennis (01:35):
Probably a very common method of startup is
bootstrapping.
How to fund a startup isbootstrapping?
It means you're basicallyself-funding it out of your bank
account, out of your checkbook,your savings account, whatever
you have.
An awful lot of smallbusinesses start that way,
especially a contractor whoalready owns a truck.
(01:56):
So you know he may put five orseven or maybe $10,000 of his
own money into the business andhe's up and running.
He has to buy a few tools.
That type of thing, as a soleproprietor, you can bootstrap as
a partnership.
Chris (02:09):
Now, you've had a little experience with that.
Of course, you've bootstrappeda number of companies, including
, I believe, the Cape Cod GutterMonkeys.
Dennis (02:16):
That was yeah, a few other methods and we'll get to
them.
You can acquire debt, take on aloan at the beginning to get
you started.
Some people can sell stock inthe company before they start
and there's a royalty-basedmodel, which I have a little bit
of experience in that area aswell.
But let's go back to thebeginning and talk about
bootstrapping.
Yeah, I've owned severalcompanies in my life that I've
(02:38):
bootstrapped.
Yeah, including our currentgroup of companies that started
out as just the one originalbusiness, the Cape Cod Gutter
Monkeys, and it's grown intomany different businesses as
it's grown over the years, butthat's one that my partner, andy
and I we had an old truck, wehad about a 10-year-old truck,
(02:58):
and I think we each kicked insix or eight grand to fund the
startup bank account and we wereoff and running the beauty of
starting, let's say, as a soleproprietor with no debt.
First of all, a lot ofcompanies, a lot of
multi-million dollar, millionand multi-million dollar
companies, have started withlittle to no debt.
(03:19):
They started from abootstrapping model and have
grown to huge amounts of annualrevenue.
Chris (03:25):
Yeah, it's a great example.
Are you familiar with Spanx?
Yeah, spanx, she started with$5,000.
Sarah Blakely, sure, $5,000.
I see her on the Shark TankBillion dollar brand.
Yeah, is she on the Shark Tank?
Dennis (03:40):
She's one of the people that she's been a guest there
many times, yeah, many times.
Yeah, yeah, she's incredibleFive grand.
She started with, actually,mark Cuban.
He was very critical of justthis whole group of presenters
on the shark tank.
They come in and they just theysell stock early, they
overvalue their company, theyjust make a lot of rookie
mistakes and one time Markcommented hey, look, every one
(04:04):
of us up here has startedcompanies for $5,000 or less
that have grown to $20, $30million and more.
Yeah, taking on debt early canbe good We'll get to that in a
little while but, man, it'sgreat if you can start your
business with no debt.
It takes the pressure off andyou know, if you start with no
debt and you keep the owner'ssalaries low for the first year
(04:26):
or two, that creates a solidbuffer against inflation
fluctuations and just the normalbusiness cycle and other
economic challenges.
If you start with no debt andyou begin to grow, eventually
you may need a line of creditand you'll be in good position
to acquire that line of creditif you have no debt.
Chris (04:47):
Right.
This kind of ties into theprevious podcast we were doing
on financial literacy.
Certainly is keeping anotherreason why you keep your
personal debt down to absolutebare minimums, because it allows
you to take on a job or take ona chance like this on a new
business.
You can't do that.
It's hard to do that.
If your credit cards are maxedout, you know your personal
finances are a mess.
Dennis (05:07):
In fact, when we started the gutter monkeys, I sold my
Harley and I sold my boat.
And it's not that I needed themoney, it's that I knew my bike
and my boat would be adistraction.
And when you're first startinga new company, you got to be
there 80 hours a week and Idon't want to be looking at that
beautiful 2003 Heritage Softaillooking at me every day in the
(05:28):
garage and I know I can't takethat to work and my boat's just
going to be sitting in dry dock.
So yeah, actually when westarted the gutter monkeys, I
sold the Harley and I sold theboat.
And I often recommend to ourfranchisees and other businesses
that I consult on get rid ofall that extra stuff, get rid of
the extra car.
Cancel the country clubmembership, because that's
(05:51):
revenue that could even if it'spersonal revenue, that's revenue
that can be channeled to thecompany if needed.
But also, if you're out fishingor if I'm out riding my bike or
you're out golfing at thecountry club, it's costing you
money to be out there.
It's also keeping you away fromyour business.
So I like to get lean and light.
Chris (06:10):
Yeah, yeah, I experienced that a bit.
I haven't started a companybootstrapping, but certainly
joining startups from ground upcertainly is sort of like that
and that's we had kind ofexperienced.
My wife, Sandy, quit her jobfor us to be able to do that, so
we lost half our salary and ofcourse that ended the trip down
to Florida to play golf with mybuddies and the cruises that my
(06:30):
friends would take with theirfamilies and stuff like that.
But it did pay off in the end.
But yeah, you got to make thatcommitment.
Financially it can be prettydifficult.
I remember coming home quite afew times frustrated on a Friday
night saying, oh, that's it,let's all go out to dinner and
da-da-da-da and go away for theweekend.
And Sandy would be like haveyou checked the?
Dennis (06:49):
checkbook lately.
Chris (06:50):
That's not going to happen.
So, yeah, it's very difficultto do.
It's very difficult to do.
Dennis (06:53):
When my wife and I were very young, we became innkeepers
.
We bought an inn up in theWhite Mountains and we were
flipping houses.
I mean, it was easy to do inthe 80s.
We had it down and we also hadpurchased a company that was
struggling.
We purchased it for very, verylittle money and when we finally
found the inn we wanted to buy,we sold everything I sold in
(07:15):
the eight months six monthsprior to buying the inn and the
six months after that one-yearwindow.
We sold all five of ourproperties that we owned,
including a house that we livedin.
Yeah, we sold five pieces ofreal estate and I sold a startup
that I had bought.
While I had bought it, rescuedit and I didn't even know the
(07:36):
value of it.
We ended up making some goodmoney but, yeah, I sold
everything.
We just cleaned the clock, soldeverything we owned to buy the
end inn and it worked.
It wasn't really a truebootstrap because I did have to
have some bank assistance alongthe way, but I didn't want any
distractions.
So I didn't want to be flippinghouses during those first three
(07:56):
or four years getting into thehospitalities, because I know
how many hours it takes.
So, yeah, we just cleanedeverything.
We had nothing left except theinn.
We really did put all our eggsin one basket, but again, the
moral to that story is get ridof everything that might become
a distraction and turn it intocash.
Chris (08:14):
Yeah, there's a great quote, you know, see if I can
get it right here.
Entrepreneurship is living afew years of your life like most
people won't, so you can spendthe rest of your life living
like most people can't.
Dennis (08:25):
And it changes the way you think.
Yeah, you know, as you gothrough your life and I've often
said this you know the best dayever is the first day you start
your business and the next bestday is five, seven, eight years
later when you sell it.
But you get addicted to theprocess.
Chris (08:42):
Yeah, those tough years.
But we look back on them.
Sandy and I both look back onit, and still with a lot of
fondness, because they were goodtimes as well, some joy in the
struggle, so bootstrapping it'seasy, it's a great way to start
a small business.
Dennis (08:56):
You can transition from a bootstrap model to taking on
debt later down the road.
But bootstrapping either as asole proprietorship or
bootstrapping with a partner isa very common method of starting
a business.
And I'll just sort of closethis one out by saying if you
have a partnership, you know youreally want to first of all
(09:18):
make sure that you and yourpartner are 100% trusted by one
another.
This is a tough one.
Number two is how much cashdoes each partner contribute?
And I would always recommendthat you look at one another,
you and your potential businesspartner.
You kind of want to have asimilar philosophy, but it's
great if you have differentskill sets.
(09:38):
Yeah, two guys with the sameskill sets, two girls with the
same skill sets may not be ascomplimentary to one another as
two business partners withopposing skill sets.
You know the Ben and Jerrystory right A little bit.
I don't know a lot of it, butI've been there.
I've been to the place up inWaterbury, vermont.
Chris (09:56):
Yeah, where they started out.
They started out selling icecream out of a I think it was a
gas station, and it turns outthey were making ice cream and
Ben has no sense of taste orsmell.
So they were having a lot ofissues coming to terms on what
was, you know, constituted goodice cream.
They kind of figured it out,but what that led to because
they had such differentabilities what it led to was a
(10:19):
version of ice cream that wasmore flavorful and more textual.
So that's why you have ChunkyMonkey and all these things in
there, because that's what Benliked, because he couldn't pick
up as much, and so the two ofthem.
As a result of doing that, itbecame a hugely popular ice
cream.
And it was that combination ofthe two of them.
They both didn't have the sametaste, they both didn't have the
same sense of smell.
(10:41):
A perfect example.
Yeah, I think they ended updoing 12 grand.
I think four grand of each oftheir money and four grand from
an investor or family orsomething like that, and they
built Ben and Jerry's.
Dennis (10:52):
Yeah, it's probably a billion dollar business to this
day.
Chris (10:55):
I have a question for you , though Interesting one, about
going into business with friends.
Now you went into business with, actually, two of your college
roommates, long-time friends, Imean.
When it comes to trust andthings like that, I mean, who
can you trust better thanlongtime friends?
You understand each other havethe same goals.
But you also risk friendships.
I know in person.
You know I've done a couple ofstartups where that became a big
(11:18):
problem where it doesn't workout well and you can loom
friendships.
So that's kind of a one of thethings that I kind of thought
about, what's kind of struck mewhen we get into this discussion
of partnerships.
Dennis (11:26):
Well, andy and I, when we started this current company,
which has grown to be Cape CodGutter Monkeys, american Gutter
Monkeys and all of ouraffiliates, it was just he and I
, and he came from a corporateworld.
He was the CFO, you know, thevice president of finance, of a
large company.
I came from a background ofbeing self-employed, especially
(11:49):
in the hospitalities and thetrades, and I had a few
short-term goals, and number onewas friendship can't be
compromised.
Number two is Andy cannot missa salary.
He's never been self-employed,so I didn't ever want to have a
bad month where Andy wouldn'tdraw his salary.
(12:10):
That month.
Third was we wanted to get tothe point where our salaries
would match the salary that Andyleft behind, so that maybe
after two years we could get tothat point.
And each of those was veryimportant and I can tell you
Andy and I, I could trust himwith my life.
Every now and again there'll bea little minor thing going on
(12:32):
and Andy will come into myoffice and say hey, here's what
happened.
One of our coworkers ran into alittle tough time and the
company loaned him $5,000 andjust wants you to know that and
he'll just make a schedule.
So our coworker ran into a hardtime.
We're just paying back on aregular schedule.
Chris (12:53):
We would never do anything like that without
telling the other one and wetrust each other implicitly on
that.
Yeah, yes.
Dennis (12:56):
Communication is so important with, and you can't
let tough times in business comebetween friends.
Yeah, and Barbara and I werebusiness partners for a lot more
than 40 years and when you'remarried to your business partner
man, I mean I think it's great.
It was great for us our wholelives.
It was great.
But I've seen other situationswhere it didn't work out that
(13:17):
way.
Chris (13:17):
Yeah, Especially in the startup world.
I know I have a couple ofdifferent startups.
It's tough on marriages, reallytough on marriages.
Fortunately for me, my wife,Sandy, decided to stay with the
kids and that allowed me to likethrow all my weight behind the
startup.
So we weren't, like you know,both coming home at 11 o'clock
at night or something like that.
So that really kind of made it.
You know, she made it easy onme, but yeah, it's very tough.
Dennis (13:40):
I've seen that Some businesses can start up by
acquiring debt.
They might need debt.
Taking on debt early can berisky.
Taking on early debt candefinitely put an added strain
on the startup.
Taking on early debt can alsohelp the company grow in ways
that bootstrapping maybe can't,and there's a lot of
(14:02):
considerations to this.
Let's say, for example, you'regoing into the hospitalities
like a hotel or a restaurant oran inn.
Or let's say you want to openup a theme park or you want to
buy a ski resort.
You're not going to bootstrapthat.
There's some businesses thatare just too big that the
average person, or even aboveaverage person, wouldn't be able
to bootstrap it.
(14:22):
So there are some businesses,some startups, you just got to
take on debt.
In a much more realistic format, most startups are small
businesses and may or may notneed to take on debt.
But there's different ways totake on debt if you have to.
Let's say there's a young guywho wants to start a landscape
(14:42):
company and he doesn't have anymoney.
Maybe he has five grand.
It's hard to do that.
You need to buy a truck, youmight need to take out a loan of
some sort, and let's say youneed $50,000 to start this
landscape company.
Do you want to apply for an SBAloan or do you just want to go
purchase a truck and finance thetruck?
(15:03):
It's much easier and you'regoing to get a lower rate if you
just finance a truck and if youhave another five to 10 grand
that can purchase your tools andequipment to get you started,
whereas if you apply for an SBAloan, there's a lot of
compliance, a lot of hoops tojump through and expenses right.
It can take months and there'salways startup fees.
(15:25):
There's financing fees toaccess the SBA loan.
Chris (15:31):
That always seems so weird to me and I didn't know
about this.
This is not my area ofexpertise and we were talking
about this in a previous podcast.
It just seemed counterintuitivethat an SBA loan would be very
expensive for a small businessto actually get.
It just seems like it'scounterintuitive.
Dennis (15:47):
Why is it like that?
One of the buildings we wereselling a couple of years ago it
was before we were in thisbuilding here was being
purchased and our attorney thatwas doing the closing he wasn't
doing their closing, but therewas another closing he was doing
that involved each of the twoparties the buyer and the seller
(16:08):
were each working through anSBA loan process and our
attorney just said you guys areso fortunate that you're not
going through that.
The time it takes it's monthsand months and there's a lot of
compliance, dotting the I's andcrossing the T's, and then
there's the upfront expensesthat is necessary to get an SBA
(16:29):
loan.
It's very difficult and verytime consuming.
So if you need $50,000 to buy atruck, tools and equipment,
consider just purchasing thetruck and getting the truck loan
from the dealership and youprobably get a better rate with
little to no compliance, and youcan take that extra maybe five
or 10 grand that you have and gobuy that first lawnmower and
the string trimmer and a coupleof rakes.
(16:49):
There's other ways to fund yourstartup.
If you own a home and let's sayyou don't have a mortgage or
your mortgage is paid down soyou have very little mortgage,
you can consider getting anasset-based loan, a line of
credit on your home.
I've done that before.
Sometimes I don't even use aline of credit because
(17:09):
oftentimes there's no feesassociated with it.
So you can set up a $100,000,$150,000 line of credit against
your home if you've got enoughwiggle room, if you've paid down
your mortgage and you haveenough equity in your home that
you've got enough wiggle room,if you've paid down your
mortgage and you have enoughequity in your home that you can
do that.
And oftentimes the banks canset that up for little to no
money.
I've done a couple of thoseover the years, especially when
(17:31):
we were flipping houses and youneed some quick money.
It's almost like a swing loan.
So if you keep an open line ofcredit on your own home, you can
pull 80 grand out, use it tohelp fund a house that you're
flipping and you pull it backout three months later and you
just pay the interest on thethree months.
Yeah, that's the great thingabout it.
Chris (17:50):
So it's really not a mortgage, Right.
You're only paying interest ifyou use it.
That's exactly right.
So it's just laying there open.
Dennis (17:55):
And then you put that money back in and there it sits
for two more years, whether youneed it or not, and it's costing
you nothing.
So if you've got enough equitybuilt in your home, it's not a
bad way to fund a startup.
If you need a little extramoney, it's a very low interest
rate because they're holding theline of credit against your
home.
So the bank is secure and it'squick and easy.
(18:18):
Little to no startup fees.
I actually have two clientsthat I recommended to within the
last two, three months and oneof them told me I think there
was a hundred dollar fee withhis bank.
That's it.
And the other one set his upand there were no fees
associated with it.
These are two young companiesthat are a little bit past the
startup process, but it justcoincidentally happened within
(18:40):
the last four to five monthswith each of them and they each
got back to me on that and itworked out very well.
Chris (18:46):
So that's a good possible way for you to fund your
startup, if those are optionsfor you and of course, there's
one we talked about thatactually surprised me I didn't
know about as well is 401k.
So you can actually borrowagainst your 401k.
I never knew that.
Of course, that would be a.
I don't know if you'd considerit more risky, but certainly a
more non-traditional way ofdoing it, I guess.
Dennis (19:08):
Banks have a lot of tools that we don't know about.
Erin Frost, who's the managerof my bank, rockland Trust, over
in Sandwich here on the Cape.
It's amazing, and when I talkedto her the tools they have
available, she made arecommendation to me about a
couple of months ago on a formatthat they can package a loan
(19:31):
together and she gave me threeor four thoughts and I said whoa
, hold off, tell me about thisone.
And she did, and it was aperfect fit for what my client
needed.
It's amazing what banks can andwill do for you.
That's why you always want tobe on a good relationship with
your banker.
There's a lot of rules andregulations that surround the
(19:51):
401k and I don't know all thedetails, but I do know that 401k
money can be used in many wayseither the money itself or used
to take a loan against.
Chris (20:04):
Yeah, and it has to be paid back just like a regular
loan, of course, right.
Dennis (20:07):
Right, but it can be done without penalties as
opposed to.
I know some people over theyears that I've met have closed
out their 401k or a portion ofit, paid the early withdrawal
fee and used it to fund theircompany, and I know the first
time I heard it I said I thinkyou didn't have to do it that
way.
Talk to your accountant, see ifyou can find out the details on
(20:30):
that.
And eventually I did talk to myaccountant, dave, and he
explained yeah, there's a numberof ways you can access that
money for a company that you ownwith no penalty.
Chris (20:41):
Yeah, like I think it was .
Dave Ramsey said you know,before you take on debt, make
sure you know how you're payingit back.
Otherwise your lender, not you,owns your future.
That's so true.
Dennis (20:51):
Chris, that is so true.
I mean, look at college loans.
So many of these young parentswith kids in high school have no
idea what they're signing onfor.
Yeah, when they sign on thedotted line and their son or
daughter graduates four yearslater and they got six figures
in debt and it hits them like aslap in the face.
You got to start paying thisback.
Yeah, yeah, make sure, alwaysmake sure when you're taking out
(21:14):
a loan.
Look at all your options.
Yeah, because there's alwaysmore than one option, especially
with a startup.
Chris (21:21):
Yeah, you don't want a lender telling you how to run
your business at some point,which is what ends up happening,
you know, if you get in thatsituation.
Dennis (21:27):
Yeah, there's a lot of compliance with certain types of
loans.
Chris (21:30):
I mean you're taking on a partner when you get a lender.
So you know, yeah, yeah, so youknow the story of FedEx Fred
Smith.
No, fedex Fred Smith.
Dennis (21:37):
No, it's a crazy story.
Chris (21:38):
So anyway, fred, he wrote a paper at Yale on how to do
FedEx, basically, and got a Cfor the paper.
So he decided he was going togo out and do it anyway.
He had $4 million ininheritance and $80 million in
loans he raised based on thispaper.
And he went out and startedworking it.
And, of course, he started itin 73, which was the oil crisis,
(22:00):
which pretty much wiped outeven established businesses, not
let alone a business that'sbased on airplanes and whatnot.
So he had $5,000 left in hisaccount to make payroll.
He got on a plane, went to LasVegas, made $27,000, came back
that week, paid everybody andthen stretched it out long
enough that they ended uplanding $11 million.
(22:21):
I think it was $11 million loanand today they're I don't know
$60 billion company.
But that's all he needed.
But that's an example where heactually took, you know, 4
million of his own money andthen, you know, combine that
with 80 million and actually gotit to work.
So it's kind of an extremeexample of you of, uh, you know,
using debt to build a company.
(22:42):
It almost got him.
You know, it almost got him.
Dennis (22:45):
There's a lot of businesses over the years that
were close to the edge.
That that you know you cannever give up and that don't
ever give up on your business.
Chris (22:53):
And we've hit this on this podcast quite a bit again
and you can't figure out all thethings that are possibly going
to happen.
He had no idea that the oilcrisis was going to hit in 73.
No, I mean, his business was inpretty good shape.
He hit that oil crisis and italmost put him out of business.
You know, oil for planes andstuff went through the roof.
Well, you couldn't even get itsometimes, yeah, you couldn't
even get it.
So here he has a business,just-in-time business, and you
(23:15):
can't up, so just goes to showyou.
But you know, he kept his cool,took a little bit of a risk,
probably more than I would.
Dennis (23:26):
I would advise yeah, that's not on our list of things
you can do to you know Iwouldn't recommend that, but
that's sort of an extremeexample.
Chris (23:29):
But he didn't make it, you know he did at the end, you
know, get through it.
Dennis (23:33):
Well, you mentioned that he raised additional millions
and millions above and beyondwhat he had acquired.
Takes us to our next strategyof selling stock Selling stock
in your company before youreally own a company.
It's kind of a roll of the dice.
If you are going to start alandscape company and you don't
(23:58):
have the money and somebodyloans you $50,000 to start this,
how do you value the startup?
The startup has no value.
You haven't done anylandscaping work yet.
You haven't created any revenue.
So when you're selling stock asa young business owner, it's a
bit of a roll of the dicebecause that investor he might
(24:21):
kick in $25,000 and then now youhave enough money to get up and
running and maybe he owns 25%of the business as a silent
partner.
Five years later you've got 15trucks and 20 employees and
you're doing $6 million a yearin revenue.
And the silent partner thatfloated you $25,000 in the
(24:43):
beginning for 25% of yourcompany he owns a quarter of
your company and all he did wasput up $25,000.
I was actually in a meeting withone of my friends who's an
attorney.
He's a business attorney.
He talked about this.
This had nothing to do with whywe're getting together, but he
said.
I see it all the time that thiscreates the breakup of the
(25:04):
partnership, because the ownerand managing partner is doing
all the work and yet this silentpartner that floated him 25
grand is basically taking 25% ofthe profits at the end of each
year.
So be aware of that If you'reever going to sell stock in your
company.
What my attorney friend told mewas it's actually very common
(25:24):
it's hey, I'm doing all the hardwork and you know.
But if you go back and read thecontract, you know that's what
you agreed to.
He's giving you 25 grand andhe's going to own 25% of your
company.
And let's face it, when he gaveyou 25%, your company was worth
nothing, right?
You didn't?
You hadn't cut a lawn yet, youhadn't installed a shrub yet.
So he's getting paid for hisrisk.
(25:46):
He's getting paid for his risk.
So be aware of that If you ever, it's usually a family or
friend that would loan you thistype of money.
And just be aware of that,because it does happen, it's
real, yeah there's somespectacular breakups.
Chris (26:00):
You know that you can go through Part of the research for
this.
I was kind of looking at someof them.
Of course, the big ones hit,you know, Facebook is probably
one of the biggest ones where,at any rate, mark Zuckerberg and
his partner at the time best offriends broke up over that,
basically, and Zuckerberg stuckit to him, diluted him, which is
very common, by selling morestock after you bought stock,
correct, which is another dangerof it and, yeah, broke up their
(26:22):
friendship, their long-termfriendship.
So, yeah, lots of examples inthe real world of this sort of
problem.
Dennis (26:33):
Of course, if you get more, than 50% of your stock
sold, you lose control of yourcompany at that point.
Yeah, you do.
There's pros and cons to it.
If you're ever going to sellstock up front like that, make
sure that you know the person.
And how do you value thestartup, the amount of money
that they're giving you?
What percentage of nothing doesthat money represent?
And then, how well do you knowthe investor?
What are his or her short,medium and long-range goals?
(26:55):
Does this person want to cashout down the road?
You really got to considerthose things.
Will this person be a silentpartner?
Will he just be an investor, oris he going to work in some
capacity for the company?
Will this investor takeownership?
Draws?
Have a good business attorney,draw that up, draw, drop your
paperwork.
So these questions are askedbefore the money is exchanged
(27:17):
and before the agreements aremade.
Have you ever done aroyalty-based model?
Chris (27:22):
Well, I'm in a royalty-based thing right now
AGM.
So yes.
So the answer to that questionis yes.
Basically, that's what AGM isbased on.
So yeah.
So I joined AGM because I lovethis model.
To tell you the truth, I see itas almost like an annuity going
forward, and it's a great model.
You know, dunkin' Donuts wasstarted that way.
He never bought businesses.
(27:43):
After he owned his first one,he immediately turned around and
started franchising them out,and so he never used any of his
own money to grow Dunkin' Donutseffectively.
It's a great model startup andit's actually a good model for
those people that were joiningand getting those Dunkin' Donuts
early on.
They didn't have to develop thebusiness idea.
The idea was developed for them.
Dennis (28:02):
I have a client that I helped over the years.
He started his first companylike 15 years ago.
It didn't go well.
He tried a year or two later.
It didn't go well.
He tried a year or two later,it didn't go well.
And he would often ask me youknow what's going wrong, what am
I doing wrong?
And you know we would havethese discussions.
But the truth is he just wasn'tready.
He wasn't ready to go all in.
(28:24):
He didn't want to leave thesecurity of his corporate job
that he had.
He kept starting businesses onthe side and as soon as times
got tough he would abandon thepart-time business and stay with
his corporate job.
And he got kicked around a fewtimes and I always told him when
you're serious, let me know,when you're really serious about
(28:46):
starting a business, let meknow.
And about 10 years ago we hadthis conversation and he was
ready.
He was leaving Corporate USAand he was going to start a
business and he needed a littlebit of money and he really
needed a lot of guidance.
So that's one where I, as theinvestor, provided some startup
capital and then for the firsttwo years I worked a lot of
(29:10):
hours, mostly nights andweekends, mostly in a consulting
format and at year two.
That's when I began taking asmall monthly royalty, and to
this day I still take a 4%monthly royalty and it's worked
out great for both of us.
Right To me, it's a fun thingworking with a startup who's
(29:32):
real serious.
Now he's been kicked around inthe corporate world.
He'd been beat up, you know,various times in small
businesses that he started andnow he was serious about it.
So him leaving his corporatejob, that told me he's got skin
in the game, he's all in, and myputting up the startup money
was my skin in the game and Idon't really know anything about
(29:56):
his industry, I just knowbusiness 101.
And so about after two years Ibegan collecting my royalty and
that continues to this day.
It's a great gig.
We still work one day a month,maybe two days a month, tax time
.
I help him out a little bit, Iwork with him on strategic
planning and other such thingsand he owns 100% of the company.
(30:21):
With a royalty-based model likethat, I, the investor slash
asylum partner, I really don'town any of the company.
He owns 100% of the company andhe takes his own salary.
He does his own marketing andadvertising.
He builds his own clientele, hehas his own employees.
I mean again, I assist him withexperience and information and
(30:46):
I'm always working with him onvarious components of his
company.
But he owns the company 100%.
I don't own any of it.
Chris (30:53):
That's interesting.
So it's kind of a twist on thisroyalty idea.
Typically you think of theDunkin' Donuts in a royalty deal
.
You buy your Dunkin' Donuts andyou pay royalty to the company.
This way it's kind of spunaround You've got a company but
you're paying royalty to the.
You're maybe a fractional CFOis kind of like what you are.
I guess is what you would kindof be considered in this
situation.
Dennis (31:12):
I call it more of a consulting role or, you know, an
advisory position, Right right,but a use of royalty in that
fashion, which is kind of aninteresting way of doing it,
sure, and then when I say theroyalty-based model, that type
of thing, yeah, if you're ayoung potential entrepreneur and
you've got a person, a friend,a family friend, a mentor, you
(31:34):
know, with 20, 30 years in thebusiness world, it's not a bad
idea.
Cut a deal with this guy.
Maybe he floats you $50,000 instartup money and he works with
you in an advisory capacity andyou pay him a monthly royalty.
To me it's a win-win.
Yeah, that's really interesting.
I've only ever done one of them.
I've tossed that idea out to afew other people occasionally.
(31:55):
None of them the other oneshave ever come to fruition, but
the one I did.
It's still going and we're boththrilled Wow.
Chris (32:03):
To win-win.
That's interesting.
Yeah, hadn't thought of that.
Dennis (32:15):
That's an interesting read on that.
So, to wrap up, today's topicis funding your startup
Everything from sole proprietorsto partnerships who bootstrap
it, to taking on debt, sellingstock, possibly even a
royalty-based model.
There's a lot of options outthere.
Consider any and all of them.
There's pros and cons to eachone.
Chris (32:27):
Yeah, check your resources Again.
We talk about all the time.
Go to your bank, go to somementor, find these people that
can actually go through thesedifferent methods with you or
maybe make suggestions or turnyou on to people that can help
you.
It's a difficult thing whenyou're starting a new company
and you don't quite have theresources just to dive right in.
So get some help.
Dennis (32:49):
Chris, you'll often hear me talk about your inner circle
.
That's me and my financialplanner, my bank or my attorney.
You know my accountant.
These are the people that youwant to talk to before making a
decision like this.
I mean, if you're going tobootstrap it, you can kind of go
that on your own, not a bigdeal.
But if you're going to gooutside of that realm, you know,
(33:09):
talk to your mentor, talk toyour business friend that has
been doing this for a while,talk to your attorney, talk to
your accountant.
Get some thoughts and opinionson this type of thing before you
make a decision, and that willassist you in making the right
decision.
Chris (33:22):
You're never too young to start building that group of
people around you.
Dennis (33:25):
Yeah, and you're never too old.
You're never too old either.
Chris (33:28):
Yeah, yeah, you don't want to start doing that 10
years into your business.
It's yeah, yeah, you don't wantto start doing that.
You know, 10 years into yourbusiness, something you want to
start right out of the gate.
All right, well, great, so.
Dennis (33:35):
I think that kind of wraps us up.
Chris (33:36):
Yeah, that was a good one .
Got through it with all of ourcoughing and hacking and
hopefully we'll be better forthe next show.
Dennis (33:42):
In the meantime, no monkeys were harmed in the
making of this podcast.
That's right.
Chris (33:46):
All right, see you next time.
Thank you for tuning in toMonkey Business Radio.
If you enjoyed today's episode,please make sure to subscribe,
like and follow us wherever youget your podcasts.
It really helps us reach moreaspiring entrepreneurs like you,
and if you've got a question ortopic you'd like us to cover,
(34:07):
leave a comment or reach out tous on social media.
We'd love to hear your thoughtsand keep the conversation going
.
Don't forget to leave us afive-star review if you found
the episode valuable and makesure to share it with anyone who
might benefit from our tips andstories.
We'll see you next time.
This podcast is produced byAmerican Gutter Monkeys LLC.
Build real wealth throughbusiness ownership.
(34:30):
For details, visit us atAmericanGutterMonkeyscom.
Hello, Welcome to Episode 12, Funding your Small Business
.
Today, we're diving into one ofthe biggest decisions any
entrepreneur can face how tofund a startup.
Taking on debt can be apowerful tool for growing
businesses, but it comes with aserious risk, as we say in this
episode.
I think it was Dave Ramsey saidyou know, before you take on
debt, make sure you know howyou're paying it back.
Huge your lender, not you ownsyour future.
(00:25):
In this episode, we break downdifferent funding strategies
Bootstrapping, taking on debt,bringing in investors,
royalty-based models, sharingpersonal experiences as well as
real-world examples ofbusinesses that made it big.
Whether you're launching asmall side hustle or aiming for
a multi-million dollar company,this episode will help you
(00:50):
navigate the financial choicesthat set your business up for
success.
We have a great episode for you, so grab a cup of coffee, sit
back, relax and welcome toMonkey Business Radio.
Hello everyone, Welcome toepisode 11, Funding your Small
Business.
And, as always, I'm here withDennis Siggins.
Dennis, how are you today?
Not too bad.
Chris, how are you doing?
Good, good, you know this is acritical subject to talk about
(01:13):
when you're funding your smallbusiness.
You know how you get startedreally kind of sets you for the
road ahead, so I'm going to diveright into it today.
There's a number of differentways of doing it.
You've probably, in your career, probably experienced a number
of them.
I certainly have hit a coupleof them myself.
So why don't we just kind ofdive in?
What do you have in mind today?
What are the different methods?
We're going to be discussing Alot of different methods.
Dennis (01:35):
Probably a very common method of startup is
bootstrapping.
How to fund a startup isbootstrapping?
It means you're basicallyself-funding it out of your bank
account, out of your checkbook,your savings account, whatever
you have.
An awful lot of smallbusinesses start that way,
especially a contractor whoalready owns a truck.
(01:56):
So you know he may put five orseven or maybe $10,000 of his
own money into the business andhe's up and running.
He has to buy a few tools.
That type of thing, as a soleproprietor, you can bootstrap as
a partnership.
Chris (02:09):
Now, you've had a little experience with that.
Of course, you've bootstrappeda number of companies, including
, I believe, the Cape Cod GutterMonkeys.
Dennis (02:16):
That was yeah, a few other methods and we'll get to
them.
You can acquire debt, take on aloan at the beginning to get
you started.
Some people can sell stock inthe company before they start
and there's a royalty-basedmodel, which I have a little bit
of experience in that area aswell.
But let's go back to thebeginning and talk about
bootstrapping.
Yeah, I've owned severalcompanies in my life that I've
(02:38):
bootstrapped.
Yeah, including our currentgroup of companies that started
out as just the one originalbusiness, the Cape Cod Gutter
Monkeys, and it's grown intomany different businesses as
it's grown over the years, butthat's one that my partner, andy
and I we had an old truck, wehad about a 10-year-old truck,
(02:58):
and I think we each kicked insix or eight grand to fund the
startup bank account and we wereoff and running the beauty of
starting, let's say, as a soleproprietor with no debt.
First of all, a lot ofcompanies, a lot of
multi-million dollar, millionand multi-million dollar
companies, have started withlittle to no debt.
(03:19):
They started from abootstrapping model and have
grown to huge amounts of annualrevenue.
Chris (03:25):
Yeah, it's a great example.
Are you familiar with Spanx?
Yeah, spanx, she started with$5,000.
Sarah Blakely, sure, $5,000.
I see her on the Shark TankBillion dollar brand.
Yeah, is she on the Shark Tank?
Dennis (03:40):
She's one of the people that she's been a guest there
many times, yeah, many times.
Yeah, yeah, she's incredibleFive grand.
She started with, actually,mark Cuban.
He was very critical of justthis whole group of presenters
on the shark tank.
They come in and they just theysell stock early, they
overvalue their company, theyjust make a lot of rookie
mistakes and one time Markcommented hey, look, every one
(04:04):
of us up here has startedcompanies for $5,000 or less
that have grown to $20, $30million and more.
Yeah, taking on debt early canbe good We'll get to that in a
little while but, man, it'sgreat if you can start your
business with no debt.
It takes the pressure off andyou know, if you start with no
debt and you keep the owner'ssalaries low for the first year
(04:26):
or two, that creates a solidbuffer against inflation
fluctuations and just the normalbusiness cycle and other
economic challenges.
If you start with no debt andyou begin to grow, eventually
you may need a line of creditand you'll be in good position
to acquire that line of creditif you have no debt.
Chris (04:47):
Right.
This kind of ties into theprevious podcast we were doing
on financial literacy.
Certainly is keeping anotherreason why you keep your
personal debt down to absolutebare minimums, because it allows
you to take on a job or take ona chance like this on a new
business.
You can't do that.
It's hard to do that.
If your credit cards are maxedout, you know your personal
finances are a mess.
Dennis (05:07):
In fact, when we started the gutter monkeys, I sold my
Harley and I sold my boat.
And it's not that I needed themoney, it's that I knew my bike
and my boat would be adistraction.
And when you're first startinga new company, you got to be
there 80 hours a week and Idon't want to be looking at that
beautiful 2003 Heritage Softaillooking at me every day in the
(05:28):
garage and I know I can't takethat to work and my boat's just
going to be sitting in dry dock.
So yeah, actually when westarted the gutter monkeys, I
sold the Harley and I sold theboat.
And I often recommend to ourfranchisees and other businesses
that I consult on get rid ofall that extra stuff, get rid of
the extra car.
Cancel the country clubmembership, because that's
(05:51):
revenue that could even if it'spersonal revenue, that's revenue
that can be channeled to thecompany if needed.
But also, if you're out fishingor if I'm out riding my bike or
you're out golfing at thecountry club, it's costing you
money to be out there.
It's also keeping you away fromyour business.
So I like to get lean and light.
Chris (06:10):
Yeah, yeah, I experienced that a bit.
I haven't started a companybootstrapping, but certainly
joining startups from ground upcertainly is sort of like that
and that's we had kind ofexperienced.
My wife, Sandy, quit her jobfor us to be able to do that, so
we lost half our salary and ofcourse that ended the trip down
to Florida to play golf with mybuddies and the cruises that my
(06:30):
friends would take with theirfamilies and stuff like that.
But it did pay off in the end.
But yeah, you got to make thatcommitment.
Financially it can be prettydifficult.
I remember coming home quite afew times frustrated on a Friday
night saying, oh, that's it,let's all go out to dinner and
da-da-da-da and go away for theweekend.
And Sandy would be like haveyou checked the?
Dennis (06:49):
checkbook lately.
Chris (06:50):
That's not going to happen.
So, yeah, it's very difficultto do.
It's very difficult to do.
Dennis (06:53):
When my wife and I were very young, we became innkeepers
.
We bought an inn up in theWhite Mountains and we were
flipping houses.
I mean, it was easy to do inthe 80s.
We had it down and we also hadpurchased a company that was
struggling.
We purchased it for very, verylittle money and when we finally
found the inn we wanted to buy,we sold everything I sold in
(07:15):
the eight months six monthsprior to buying the inn and the
six months after that one-yearwindow.
We sold all five of ourproperties that we owned,
including a house that we livedin.
Yeah, we sold five pieces ofreal estate and I sold a startup
that I had bought.
While I had bought it, rescuedit and I didn't even know the
(07:36):
value of it.
We ended up making some goodmoney but, yeah, I sold
everything.
We just cleaned the clock, soldeverything we owned to buy the
end inn and it worked.
It wasn't really a truebootstrap because I did have to
have some bank assistance alongthe way, but I didn't want any
distractions.
So I didn't want to be flippinghouses during those first three
(07:56):
or four years getting into thehospitalities, because I know
how many hours it takes.
So, yeah, we just cleanedeverything.
We had nothing left except theinn.
We really did put all our eggsin one basket, but again, the
moral to that story is get ridof everything that might become
a distraction and turn it intocash.
Chris (08:14):
Yeah, there's a great quote, you know, see if I can
get it right here.
Entrepreneurship is living afew years of your life like most
people won't, so you can spendthe rest of your life living
like most people can't.
Dennis (08:25):
And it changes the way you think.
Yeah, you know, as you gothrough your life and I've often
said this you know the best dayever is the first day you start
your business and the next bestday is five, seven, eight years
later when you sell it.
But you get addicted to theprocess.
Chris (08:42):
Yeah, those tough years.
But we look back on them.
Sandy and I both look back onit, and still with a lot of
fondness, because they were goodtimes as well, some joy in the
struggle, so bootstrapping it'seasy, it's a great way to start
a small business.
Dennis (08:56):
You can transition from a bootstrap model to taking on
debt later down the road.
But bootstrapping either as asole proprietorship or
bootstrapping with a partner isa very common method of starting
a business.
And I'll just sort of closethis one out by saying if you
have a partnership, you know youreally want to first of all
(09:18):
make sure that you and yourpartner are 100% trusted by one
another.
This is a tough one.
Number two is how much cashdoes each partner contribute?
And I would always recommendthat you look at one another,
you and your potential businesspartner.
You kind of want to have asimilar philosophy, but it's
great if you have differentskill sets.
(09:38):
Yeah, two guys with the sameskill sets, two girls with the
same skill sets may not be ascomplimentary to one another as
two business partners withopposing skill sets.
You know the Ben and Jerrystory right A little bit.
I don't know a lot of it, butI've been there.
I've been to the place up inWaterbury, vermont.
Chris (09:56):
Yeah, where they started out.
They started out selling icecream out of a I think it was a
gas station, and it turns outthey were making ice cream and
Ben has no sense of taste orsmell.
So they were having a lot ofissues coming to terms on what
was, you know, constituted goodice cream.
They kind of figured it out,but what that led to because
they had such differentabilities what it led to was a
(10:19):
version of ice cream that wasmore flavorful and more textual.
So that's why you have ChunkyMonkey and all these things in
there, because that's what Benliked, because he couldn't pick
up as much, and so the two ofthem.
As a result of doing that, itbecame a hugely popular ice
cream.
And it was that combination ofthe two of them.
They both didn't have the sametaste, they both didn't have the
same sense of smell.
(10:41):
A perfect example.
Yeah, I think they ended updoing 12 grand.
I think four grand of each oftheir money and four grand from
an investor or family orsomething like that, and they
built Ben and Jerry's.
Dennis (10:52):
Yeah, it's probably a billion dollar business to this
day.
Chris (10:55):
I have a question for you , though Interesting one, about
going into business with friends.
Now you went into business with, actually, two of your college
roommates, long-time friends, Imean.
When it comes to trust andthings like that, I mean, who
can you trust better thanlongtime friends?
You understand each other havethe same goals.
But you also risk friendships.
I know in person.
You know I've done a couple ofstartups where that became a big
(11:18):
problem where it doesn't workout well and you can loom
friendships.
So that's kind of a one of thethings that I kind of thought
about, what's kind of struck mewhen we get into this discussion
of partnerships.
Dennis (11:26):
Well, andy and I, when we started this current company,
which has grown to be Cape CodGutter Monkeys, american Gutter
Monkeys and all of ouraffiliates, it was just he and I
, and he came from a corporateworld.
He was the CFO, you know, thevice president of finance, of a
large company.
I came from a background ofbeing self-employed, especially
(11:49):
in the hospitalities and thetrades, and I had a few
short-term goals, and number onewas friendship can't be
compromised.
Number two is Andy cannot missa salary.
He's never been self-employed,so I didn't ever want to have a
bad month where Andy wouldn'tdraw his salary.
(12:10):
That month.
Third was we wanted to get tothe point where our salaries
would match the salary that Andyleft behind, so that maybe
after two years we could get tothat point.
And each of those was veryimportant and I can tell you
Andy and I, I could trust himwith my life.
Every now and again there'll bea little minor thing going on
(12:32):
and Andy will come into myoffice and say hey, here's what
happened.
One of our coworkers ran into alittle tough time and the
company loaned him $5,000 andjust wants you to know that and
he'll just make a schedule.
So our coworker ran into a hardtime.
We're just paying back on aregular schedule.
Chris (12:53):
We would never do anything like that without
telling the other one and wetrust each other implicitly on
that.
Yeah, yes.
Dennis (12:56):
Communication is so important with, and you can't
let tough times in business comebetween friends.
Yeah, and Barbara and I werebusiness partners for a lot more
than 40 years and when you'remarried to your business partner
man, I mean I think it's great.
It was great for us our wholelives.
It was great.
But I've seen other situationswhere it didn't work out that
(13:17):
way.
Chris (13:17):
Yeah, Especially in the startup world.
I know I have a couple ofdifferent startups.
It's tough on marriages, reallytough on marriages.
Fortunately for me, my wife,Sandy, decided to stay with the
kids and that allowed me to likethrow all my weight behind the
startup.
So we weren't, like you know,both coming home at 11 o'clock
at night or something like that.
So that really kind of made it.
You know, she made it easy onme, but yeah, it's very tough.
Dennis (13:40):
I've seen that Some businesses can start up by
acquiring debt.
They might need debt.
Taking on debt early can berisky.
Taking on early debt candefinitely put an added strain
on the startup.
Taking on early debt can alsohelp the company grow in ways
that bootstrapping maybe can't,and there's a lot of
(14:02):
considerations to this.
Let's say, for example, you'regoing into the hospitalities
like a hotel or a restaurant oran inn.
Or let's say you want to openup a theme park or you want to
buy a ski resort.
You're not going to bootstrapthat.
There's some businesses thatare just too big that the
average person, or even aboveaverage person, wouldn't be able
to bootstrap it.
(14:22):
So there are some businesses,some startups, you just got to
take on debt.
In a much more realistic format, most startups are small
businesses and may or may notneed to take on debt.
But there's different ways totake on debt if you have to.
Let's say there's a young guywho wants to start a landscape
(14:42):
company and he doesn't have anymoney.
Maybe he has five grand.
It's hard to do that.
You need to buy a truck, youmight need to take out a loan of
some sort, and let's say youneed $50,000 to start this
landscape company.
Do you want to apply for an SBAloan or do you just want to go
purchase a truck and finance thetruck?
(15:03):
It's much easier and you'regoing to get a lower rate if you
just finance a truck and if youhave another five to 10 grand
that can purchase your tools andequipment to get you started,
whereas if you apply for an SBAloan, there's a lot of
compliance, a lot of hoops tojump through and expenses right.
It can take months and there'salways startup fees.
(15:25):
There's financing fees toaccess the SBA loan.
Chris (15:31):
That always seems so weird to me and I didn't know
about this.
This is not my area ofexpertise and we were talking
about this in a previous podcast.
It just seemed counterintuitivethat an SBA loan would be very
expensive for a small businessto actually get.
It just seems like it'scounterintuitive.
Dennis (15:47):
Why is it like that?
One of the buildings we wereselling a couple of years ago it
was before we were in thisbuilding here was being
purchased and our attorney thatwas doing the closing he wasn't
doing their closing, but therewas another closing he was doing
that involved each of the twoparties the buyer and the seller
(16:08):
were each working through anSBA loan process and our
attorney just said you guys areso fortunate that you're not
going through that.
The time it takes it's monthsand months and there's a lot of
compliance, dotting the I's andcrossing the T's, and then
there's the upfront expensesthat is necessary to get an SBA
(16:29):
loan.
It's very difficult and verytime consuming.
So if you need $50,000 to buy atruck, tools and equipment,
consider just purchasing thetruck and getting the truck loan
from the dealership and youprobably get a better rate with
little to no compliance, and youcan take that extra maybe five
or 10 grand that you have and gobuy that first lawnmower and
the string trimmer and a coupleof rakes.
(16:49):
There's other ways to fund yourstartup.
If you own a home and let's sayyou don't have a mortgage or
your mortgage is paid down soyou have very little mortgage,
you can consider getting anasset-based loan, a line of
credit on your home.
I've done that before.
Sometimes I don't even use aline of credit because
(17:09):
oftentimes there's no feesassociated with it.
So you can set up a $100,000,$150,000 line of credit against
your home if you've got enoughwiggle room, if you've paid down
your mortgage and you haveenough equity in your home that
you've got enough wiggle room,if you've paid down your
mortgage and you have enoughequity in your home that you can
do that.
And oftentimes the banks canset that up for little to no
money.
I've done a couple of thoseover the years, especially when
(17:31):
we were flipping houses and youneed some quick money.
It's almost like a swing loan.
So if you keep an open line ofcredit on your own home, you can
pull 80 grand out, use it tohelp fund a house that you're
flipping and you pull it backout three months later and you
just pay the interest on thethree months.
Yeah, that's the great thingabout it.
Chris (17:50):
So it's really not a mortgage, Right.
You're only paying interest ifyou use it.
That's exactly right.
So it's just laying there open.
Dennis (17:55):
And then you put that money back in and there it sits
for two more years, whether youneed it or not, and it's costing
you nothing.
So if you've got enough equitybuilt in your home, it's not a
bad way to fund a startup.
If you need a little extramoney, it's a very low interest
rate because they're holding theline of credit against your
home.
So the bank is secure and it'squick and easy.
(18:18):
Little to no startup fees.
I actually have two clientsthat I recommended to within the
last two, three months and oneof them told me I think there
was a hundred dollar fee withhis bank.
That's it.
And the other one set his upand there were no fees
associated with it.
These are two young companiesthat are a little bit past the
startup process, but it justcoincidentally happened within
(18:40):
the last four to five monthswith each of them and they each
got back to me on that and itworked out very well.
Chris (18:46):
So that's a good possible way for you to fund your
startup, if those are optionsfor you and of course, there's
one we talked about thatactually surprised me I didn't
know about as well is 401k.
So you can actually borrowagainst your 401k.
I never knew that.
Of course, that would be a.
I don't know if you'd considerit more risky, but certainly a
more non-traditional way ofdoing it, I guess.
Dennis (19:08):
Banks have a lot of tools that we don't know about.
Erin Frost, who's the managerof my bank, rockland Trust, over
in Sandwich here on the Cape.
It's amazing, and when I talkedto her the tools they have
available, she made arecommendation to me about a
couple of months ago on a formatthat they can package a loan
(19:31):
together and she gave me threeor four thoughts and I said whoa
, hold off, tell me about thisone.
And she did, and it was aperfect fit for what my client
needed.
It's amazing what banks can andwill do for you.
That's why you always want tobe on a good relationship with
your banker.
There's a lot of rules andregulations that surround the
(19:51):
401k and I don't know all thedetails, but I do know that 401k
money can be used in many wayseither the money itself or used
to take a loan against.
Chris (20:04):
Yeah, and it has to be paid back just like a regular
loan, of course, right.
Dennis (20:07):
Right, but it can be done without penalties as
opposed to.
I know some people over theyears that I've met have closed
out their 401k or a portion ofit, paid the early withdrawal
fee and used it to fund theircompany, and I know the first
time I heard it I said I thinkyou didn't have to do it that
way.
Talk to your accountant, see ifyou can find out the details on
(20:30):
that.
And eventually I did talk to myaccountant, dave, and he
explained yeah, there's a numberof ways you can access that
money for a company that you ownwith no penalty.
Chris (20:41):
Yeah, like I think it was .
Dave Ramsey said you know,before you take on debt, make
sure you know how you're payingit back.
Otherwise your lender, not you,owns your future.
That's so true.
Dennis (20:51):
Chris, that is so true.
I mean, look at college loans.
So many of these young parentswith kids in high school have no
idea what they're signing onfor.
Yeah, when they sign on thedotted line and their son or
daughter graduates four yearslater and they got six figures
in debt and it hits them like aslap in the face.
You got to start paying thisback.
Yeah, yeah, make sure, alwaysmake sure when you're taking out
(21:14):
a loan.
Look at all your options.
Yeah, because there's alwaysmore than one option, especially
with a startup.
Chris (21:21):
Yeah, you don't want a lender telling you how to run
your business at some point,which is what ends up happening,
you know, if you get in thatsituation.
Dennis (21:27):
Yeah, there's a lot of compliance with certain types of
loans.
Chris (21:30):
I mean you're taking on a partner when you get a lender.
So you know, yeah, yeah, so youknow the story of FedEx Fred
Smith.
No, fedex Fred Smith.
Dennis (21:37):
No, it's a crazy story.
Chris (21:38):
So anyway, fred, he wrote a paper at Yale on how to do
FedEx, basically, and got a Cfor the paper.
So he decided he was going togo out and do it anyway.
He had $4 million ininheritance and $80 million in
loans he raised based on thispaper.
And he went out and startedworking it.
And, of course, he started itin 73, which was the oil crisis,
(22:00):
which pretty much wiped outeven established businesses, not
let alone a business that'sbased on airplanes and whatnot.
So he had $5,000 left in hisaccount to make payroll.
He got on a plane, went to LasVegas, made $27,000, came back
that week, paid everybody andthen stretched it out long
enough that they ended uplanding $11 million.
(22:21):
I think it was $11 million loanand today they're I don't know
$60 billion company.
But that's all he needed.
But that's an example where heactually took, you know, 4
million of his own money andthen, you know, combine that
with 80 million and actually gotit to work.
So it's kind of an extremeexample of you of, uh, you know,
using debt to build a company.
(22:42):
It almost got him.
You know, it almost got him.
Dennis (22:45):
There's a lot of businesses over the years that
were close to the edge.
That that you know you cannever give up and that don't
ever give up on your business.
Chris (22:53):
And we've hit this on this podcast quite a bit again
and you can't figure out all thethings that are possibly going
to happen.
He had no idea that the oilcrisis was going to hit in 73.
No, I mean, his business was inpretty good shape.
He hit that oil crisis and italmost put him out of business.
You know, oil for planes andstuff went through the roof.
Well, you couldn't even get itsometimes, yeah, you couldn't
even get it.
So here he has a business,just-in-time business, and you
(23:15):
can't up, so just goes to showyou.
But you know, he kept his cool,took a little bit of a risk,
probably more than I would.
Dennis (23:26):
I would advise yeah, that's not on our list of things
you can do to you know Iwouldn't recommend that, but
that's sort of an extremeexample.
Chris (23:29):
But he didn't make it, you know he did at the end, you
know, get through it.
Dennis (23:33):
Well, you mentioned that he raised additional millions
and millions above and beyondwhat he had acquired.
Takes us to our next strategyof selling stock Selling stock
in your company before youreally own a company.
It's kind of a roll of the dice.
If you are going to start alandscape company and you don't
(23:58):
have the money and somebodyloans you $50,000 to start this,
how do you value the startup?
The startup has no value.
You haven't done anylandscaping work yet.
You haven't created any revenue.
So when you're selling stock asa young business owner, it's a
bit of a roll of the dicebecause that investor he might
(24:21):
kick in $25,000 and then now youhave enough money to get up and
running and maybe he owns 25%of the business as a silent
partner.
Five years later you've got 15trucks and 20 employees and
you're doing $6 million a yearin revenue.
And the silent partner thatfloated you $25,000 in the
(24:43):
beginning for 25% of yourcompany he owns a quarter of
your company and all he did wasput up $25,000.
I was actually in a meeting withone of my friends who's an
attorney.
He's a business attorney.
He talked about this.
This had nothing to do with whywe're getting together, but he
said.
I see it all the time that thiscreates the breakup of the
(25:04):
partnership, because the ownerand managing partner is doing
all the work and yet this silentpartner that floated him 25
grand is basically taking 25% ofthe profits at the end of each
year.
So be aware of that If you'reever going to sell stock in your
company.
What my attorney friend told mewas it's actually very common
(25:24):
it's hey, I'm doing all the hardwork and you know.
But if you go back and read thecontract, you know that's what
you agreed to.
He's giving you 25 grand andhe's going to own 25% of your
company.
And let's face it, when he gaveyou 25%, your company was worth
nothing, right?
You didn't?
You hadn't cut a lawn yet, youhadn't installed a shrub yet.
So he's getting paid for hisrisk.
(25:46):
He's getting paid for his risk.
So be aware of that If you ever, it's usually a family or
friend that would loan you thistype of money.
And just be aware of that,because it does happen, it's
real, yeah there's somespectacular breakups.
Chris (26:00):
You know that you can go through Part of the research for
this.
I was kind of looking at someof them.
Of course, the big ones hit,you know, Facebook is probably
one of the biggest ones where,at any rate, mark Zuckerberg and
his partner at the time best offriends broke up over that,
basically, and Zuckerberg stuckit to him, diluted him, which is
very common, by selling morestock after you bought stock,
correct, which is another dangerof it and, yeah, broke up their
(26:22):
friendship, their long-termfriendship.
So, yeah, lots of examples inthe real world of this sort of
problem.
Dennis (26:33):
Of course, if you get more, than 50% of your stock
sold, you lose control of yourcompany at that point.
Yeah, you do.
There's pros and cons to it.
If you're ever going to sellstock up front like that, make
sure that you know the person.
And how do you value thestartup, the amount of money
that they're giving you?
What percentage of nothing doesthat money represent?
And then, how well do you knowthe investor?
What are his or her short,medium and long-range goals?
(26:55):
Does this person want to cashout down the road?
You really got to considerthose things.
Will this person be a silentpartner?
Will he just be an investor, oris he going to work in some
capacity for the company?
Will this investor takeownership?
Draws?
Have a good business attorney,draw that up, draw, drop your
paperwork.
So these questions are askedbefore the money is exchanged
(27:17):
and before the agreements aremade.
Have you ever done aroyalty-based model?
Chris (27:22):
Well, I'm in a royalty-based thing right now
AGM.
So yes.
So the answer to that questionis yes.
Basically, that's what AGM isbased on.
So yeah.
So I joined AGM because I lovethis model.
To tell you the truth, I see itas almost like an annuity going
forward, and it's a great model.
You know, dunkin' Donuts wasstarted that way.
He never bought businesses.
(27:43):
After he owned his first one,he immediately turned around and
started franchising them out,and so he never used any of his
own money to grow Dunkin' Donutseffectively.
It's a great model startup andit's actually a good model for
those people that were joiningand getting those Dunkin' Donuts
early on.
They didn't have to develop thebusiness idea.
The idea was developed for them.
Dennis (28:02):
I have a client that I helped over the years.
He started his first companylike 15 years ago.
It didn't go well.
He tried a year or two later.
It didn't go well.
He tried a year or two later,it didn't go well.
And he would often ask me youknow what's going wrong, what am
I doing wrong?
And you know we would havethese discussions.
But the truth is he just wasn'tready.
He wasn't ready to go all in.
(28:24):
He didn't want to leave thesecurity of his corporate job
that he had.
He kept starting businesses onthe side and as soon as times
got tough he would abandon thepart-time business and stay with
his corporate job.
And he got kicked around a fewtimes and I always told him when
you're serious, let me know,when you're really serious about
(28:46):
starting a business, let meknow.
And about 10 years ago we hadthis conversation and he was
ready.
He was leaving Corporate USAand he was going to start a
business and he needed a littlebit of money and he really
needed a lot of guidance.
So that's one where I, as theinvestor, provided some startup
capital and then for the firsttwo years I worked a lot of
(29:10):
hours, mostly nights andweekends, mostly in a consulting
format and at year two.
That's when I began taking asmall monthly royalty, and to
this day I still take a 4%monthly royalty and it's worked
out great for both of us.
Right To me, it's a fun thingworking with a startup who's
(29:32):
real serious.
Now he's been kicked around inthe corporate world.
He'd been beat up, you know,various times in small
businesses that he started andnow he was serious about it.
So him leaving his corporatejob, that told me he's got skin
in the game, he's all in, and myputting up the startup money
was my skin in the game and Idon't really know anything about
(29:56):
his industry, I just knowbusiness 101.
And so about after two years Ibegan collecting my royalty and
that continues to this day.
It's a great gig.
We still work one day a month,maybe two days a month, tax time
.
I help him out a little bit, Iwork with him on strategic
planning and other such thingsand he owns 100% of the company.
(30:21):
With a royalty-based model likethat, I, the investor slash
asylum partner, I really don'town any of the company.
He owns 100% of the company andhe takes his own salary.
He does his own marketing andadvertising.
He builds his own clientele, hehas his own employees.
I mean again, I assist him withexperience and information and
(30:46):
I'm always working with him onvarious components of his
company.
But he owns the company 100%.
I don't own any of it.
Chris (30:53):
That's interesting.
So it's kind of a twist on thisroyalty idea.
Typically you think of theDunkin' Donuts in a royalty deal
.
You buy your Dunkin' Donuts andyou pay royalty to the company.
This way it's kind of spunaround You've got a company but
you're paying royalty to the.
You're maybe a fractional CFOis kind of like what you are.
I guess is what you would kindof be considered in this
situation.
Dennis (31:12):
I call it more of a consulting role or, you know, an
advisory position, Right right,but a use of royalty in that
fashion, which is kind of aninteresting way of doing it,
sure, and then when I say theroyalty-based model, that type
of thing, yeah, if you're ayoung potential entrepreneur and
you've got a person, a friend,a family friend, a mentor, you
(31:34):
know, with 20, 30 years in thebusiness world, it's not a bad
idea.
Cut a deal with this guy.
Maybe he floats you $50,000 instartup money and he works with
you in an advisory capacity andyou pay him a monthly royalty.
To me it's a win-win.
Yeah, that's really interesting.
I've only ever done one of them.
I've tossed that idea out to afew other people occasionally.
(31:55):
None of them the other oneshave ever come to fruition, but
the one I did.
It's still going and we're boththrilled Wow.
Chris (32:03):
To win-win.
That's interesting.
Yeah, hadn't thought of that.
Dennis (32:15):
That's an interesting read on that.
So, to wrap up, today's topicis funding your startup
Everything from sole proprietorsto partnerships who bootstrap
it, to taking on debt, sellingstock, possibly even a
royalty-based model.
There's a lot of options outthere.
Consider any and all of them.
There's pros and cons to eachone.
Chris (32:27):
Yeah, check your resources Again.
We talk about all the time.
Go to your bank, go to somementor, find these people that
can actually go through thesedifferent methods with you or
maybe make suggestions or turnyou on to people that can help
you.
It's a difficult thing whenyou're starting a new company
and you don't quite have theresources just to dive right in.
So get some help.
Dennis (32:49):
Chris, you'll often hear me talk about your inner circle
.
That's me and my financialplanner, my bank or my attorney.
You know my accountant.
These are the people that youwant to talk to before making a
decision like this.
I mean, if you're going tobootstrap it, you can kind of go
that on your own, not a bigdeal.
But if you're going to gooutside of that realm, you know,
(33:09):
talk to your mentor, talk toyour business friend that has
been doing this for a while,talk to your attorney, talk to
your accountant.
Get some thoughts and opinionson this type of thing before you
make a decision, and that willassist you in making the right
decision.
Chris (33:22):
You're never too young to start building that group of
people around you.
Dennis (33:25):
Yeah, and you're never too old.
You're never too old either.
Chris (33:28):
Yeah, yeah, you don't want to start doing that 10
years into your business.
It's yeah, yeah, you don't wantto start doing that.
You know, 10 years into yourbusiness, something you want to
start right out of the gate.
All right, well, great, so.
Dennis (33:35):
I think that kind of wraps us up.
Chris (33:36):
Yeah, that was a good one .
Got through it with all of ourcoughing and hacking and
hopefully we'll be better forthe next show.
Dennis (33:42):
In the meantime, no monkeys were harmed in the
making of this podcast.
That's right.
Chris (33:46):
All right, see you next time.
Thank you for tuning in toMonkey Business Radio.
If you enjoyed today's episode,please make sure to subscribe,
like and follow us wherever youget your podcasts.
It really helps us reach moreaspiring entrepreneurs like you,
and if you've got a question ortopic you'd like us to cover,
(34:07):
leave a comment or reach out tous on social media.
We'd love to hear your thoughtsand keep the conversation going
.
Don't forget to leave us afive-star review if you found
the episode valuable and makesure to share it with anyone who
might benefit from our tips andstories.
We'll see you next time.
This podcast is produced byAmerican Gutter Monkeys LLC.
Build real wealth throughbusiness ownership.
(34:30):
For details, visit us atAmericanGutterMonkeyscom.
Popular Podcasts
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.