It doesn’t really matter how much startup capital you have. Startup capital is NOT the leading predictor of success, according to Inc Magazine. PDF report here with facts and figures. What matters more is your ability to manage a growing business.
Inc Magazine studied the companies in its Inc 500 list. Companies that started with less than $1,000 were as likely to be successful as those that started with more than $100,000.
Now, it’s true that companies which started with more than $100,000 grew larger and faster. That’s probably because they could afford to hire employees faster.
However, the companies that started with the most capital were actually less profitable on average than those that started with little capital.
Which says a lot about managing to a tight budget, doesn’t it? When you get used to squeezing every penny, those habits carry on and make the difference in profitability.
I would be very interested in better understanding the methodology of this study. It seems to me self evident that the companys’ balance sheet and its cash budget is a far better determinent of excess cash than INC’s 500 broad parameters of $1,000 vrs $100,000 start-up cash. For instance, I doubt a manufacturer of anything could/would survice a week relying on just $1,000 of W/C grease. Lower profitability at the expense of higher liquidity is the key to short term viability.
Hi Mr. O’Sullivan,
I agree with you regarding a manufacturing company — one grand would not get you far. And I also agree with your comment about the balance sheet and cash budget.