_Warning! This is a thought experiment based on information that came directly out of my head immediately after waking-up. There may be factual errors (hell, there may be mathematical errors) so bear that in mind when consuming or reacting to the words that follow. _
The other day I saw a meme which (among other things) claimed that for $999.99 you could start a business instead of buying a new iPhone. While thinking about how I’d rebut this claim I wondered about what kind of business you could even start for $999 (let’s make it an even $1000.00).
Setting-aside the intended reductionism of the meme, I find the thought experiment somewhat enticing: could I come up with a idea that, given $1000.00 in “seed money”, could actually be cultivated into a self-sustaining business?
I’ve never thought about designing a business this way. I’ve always started with the idea for a product or service and thought about what potential it has to capture an audience and generate enough revenue to sustain a business. Looking at it from this other direction, making an idea that fits within a fixed investment is something new. Maybe this is how real businesspeople think but it’s completely foreign to me.
To be clear I don’t believe that this is possible if you account for all of the hidden but real costs of such an endeavor (for example, I’ve already spent at least $250 worth of time at my standard rate just thinking about this and writing this blog post). But if we treat those as say “hobby expenses” and forego paying the founder fair market value for their time out of this initial $1000.00, that gives us something to play with.
Off the top we need to pay some fixed costs to make the company legal. I’m sure there is a wide range for this depending on where the company is formed but I looked into it in Wisconsin and I think it’s fair to estimate that these will cost around $250.00. That leaves us with $750.00 going into the next step.
There are other initial costs that most businesses incur to take off the top before we talk about doing any actual work. Things like business cards, setting up a website, communications (email/telephone/p.o. box/etc.) that may be avoided, but minimally you need a way for someone to purchase whatever you’re selling and I think the cheapest way to do this is online.
The cheapest and simplest option I’m aware of for selling things online is PayPal, and using PayPal centers around email, so minimally you’ll need an email address for the business and if you don’t want to seem completely sketchy the email address should really be tied to the company name. There are a million companies who provide basic web hosting and email so I think it’s safe to say this could be had for around $15 a month, and most start-up business plans I’ve seen lay out a “runway” of at least one year, so I’m going to put a price of $200 on this part of the business.
Now we have a place to sell something (website) and a way to communicate with customers (email) and a period of time in which to start making money before our initial investment runs out (1 year). With these parameters we can calculate how much we can spend creating products per month before going out of business: $45.83.
This is a pretty tight budget for creating any kind of physical goods. Not only are there material costs, but those costs done go down much as you increase the number of items produced (especially at this scale). Non-physical goods (art, software, etc.) which can be reproduced by electronic means have the advantage of zero or near-zero cost to produce copies of, and the additional benefit of near-zero delivery costs.
Clearly a product or service that can be produced and delivered electronically should be easier to make a profit off of, but there are downsides as well. It’s also much easier for others to reproduce an electronic product, and hiring a lawyer to fight something like that is likely to reduce your runway from one year to a couple hours. Or maybe you just don’t want to produce something electronic, in which case you just need to come up with a physical product you can produce and distribute enough of to turn a profit for under $550.00.
In either case you’ll probably need to spend some time assembling the product before it’s ready to be sold, and while there’s endless ways to slice-up that $550.00 to account for this time we’ll make it easy and keep the expenditure during this time to an evenly-divided $45 per month. For a non-physical product this buys about 3 hours of your time at a subsistence wage which is in-line with treating the project like a hobby.
Finally you need some way to find an audience for these products you’ve been producing. This is another problem with a million solutions and most of them cost money. Given that your time is probably the least expensive thing we can purchase, spending that on establishing a social media presence is probably the most cost-effective means of marketing/advertising/etc. you can do at this stage. There is probably a network best suited to connect with the audience for your product so determining that and spending most of your time there is recommended, but establishing basic presences and means of contact on all the major networks is probably worthwhile as well.
**$ 415 **
With only a handful of hours paid for each month (and assuming you have another job that actually pays the bills for now) I think it’s reasonable to expect to spend at least three months on the work outlined above. This leaves about 9 months and $415 to keep the lights on until you sell enough product to become profitable.
During this time there will be some decisions to make. If you are able to sell enough product to cover the next months expenses you could keep going after the first year, but you’ll have to decide if it’s worth it. If your intention is to make a living with this business (which I believe is the most basic definition of a sustainable business) you’ll need profits high enough to cover your cost of living in addition to just the cost of producing products. You’ll also need to consider other costs as this business outgrows being treated like a hobby including annual business registration costs, insurance, etc. Many businesses aim for and expect constant growth; I don’t think this is a valuable goal but growing large enough to sustain a healthy livelihood for yourself and your employees should be considered a requirement for any legitimate business.
What do I actually know about business? Probably not much. I have no training and really no interest in it other than as a means to an end in a culture that only values my work when it can be turned into money.
If I have any business knowledge it comes from spending a lot of time with a lot of different companies ranging from tiny start-ups to global enterprises. I’ve seen businesses of all sizes boom and I’ve seen them fail spectacularly, but more often they lumber along eternally as either “too big to fail” or “zombie start-ups”.
My favorite companies (as either consumer or producer) have been companies that exist deliberately, not just to survive.
I guess that’s true about most things I like.