Quick Story: Jeff Bezos and Amazon
How Amazon Got Started
The year was 1994 and Bezos was working diligently on Wall Street. At 30 years old, he began to see the internet revolution take place, and made the decision to quit his job and start an internet company.
“The wake up call was finding this startling statistic that web usage in the spring of 1994 was growing at 2,300 percent a year. You know, things just don’t grow that fast. It’s highly unusual, and that started me thinking, “What kind of business plan might make sense in the context of that growth?”
After making a list of the ‘top 20’ products that he could potentially sell on the internet, he decided on books because of their low cost and universal demand. It turns out, it was just the beginning.
The initial startup capital came from his parent’s personal savings. From an interview with Jeff Bezos, for the Academy of Achievement:
“The first initial start-up capital for Amazon.com came primarily from my parents, and they invested a large fraction of their life savings in what became Amazon.com. And you know, that was a very bold and trusting thing for them to do because they didn’t know. My dad’s first question was, “What’s the Internet?” Okay. So he wasn’t making a bet on this company or this concept. He was making a bet on his son, as was my mother. So, I told them that I thought there was a 70 percent chance that they would lose their whole investment, which was a few hundred thousand dollars, and they did it anyway.”
Jeff Bezos’ Startup Advice
“If you’re not stubborn, you’ll give up on experiments too soon. And if you’re not flexible, you’ll pound your head against the wall and you won’t see a different solution to a problem you’re trying to solve.”
Startup money is one of the greatest barriers for would be entrepreneurs. Seeking financing is a common need for business owners regardless of whether they’re starting their own business or buying a franchise. Some businesses may be funded with personal savings, lines of credit, or even credit cards – but most opportunities require outside financing. So what options are there?
- Small Business Administration (SBA) Loans
When investing in a franchise many franchisees obtain loans from their banks that are guaranteed by the Small Business Administration (SBA), which makes obtaining the loan easier.
These loans—up to $5 million—are guaranteed by the Small Business Administration (SBA) and lent by banks. The SBA has developed a Franchise Registry to make securing your load a bit easier. In the past, every time you applied for a loan to acquire a franchise, a local examiner would need to read and evaluate the franchisor’s offering to ensure that it met the SBA’s independence requirements.
Today, franchisors are supplying their offering documents to the SBA in advance and, once approved as a franchisee, you no longer have to go through the individual document review process. The Franchise Registry does not guarantee that you will get a loan since that is based on you and whether you meet the bank’s lending requirements; it merely makes the process of getting the SBA loan guarantee easier and faster.
- Retirement Accounts
Rollovers for Business Start-Ups
Many people don’t realize that you can invest up to 100% of your retirement funds into a franchise without taxes, penalties or a loan in a program called Rollovers as Business Start Up (ROBS). To qualify for ROBS you must have at least $50k in eligible retirement accounts such as an IRA, 401(k), or 403(b). Your retirement funds can be combined with a spouse’s, partner’s or traditional business loans.
- Investment Portfolio Loans
Another option is a security-backed margin-type loan offered by brokerage forms. Margin loans can be taken against a portfolio of stocks, bonds, mutual fund, and investments held within brokerage accounts. Note, however, that there is significant risk to margin loans, because if market or asset value declines then assets may be forced to be sold at low prices.
- Family, Friend or Angel Investors
Funding in Exchange for a Stake in Business
See the Amazon story above as an example. These type investors are early stage capital providers. As a result, they often require a direct role in the business – they tend to become more active partners, not just passive investors.