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3 Types of Capital Every Entrepreneur Need

by Biztraction Research

Most people who want to start a business do not understand the 3 types of capital. I guess you are here for one reason – to get information to help you start or grow your business.

When you ask most people what’s stopping them from actually starting a business, the common excuse is ”I don’t have the capital”. By capital they are referring to money. In this article we will talk about the 3 types of capital and give you the inertia to start that business.

The first thing you need to know is that there are people who have money but don’t know what to do with the money. So, if it were to be for the lack of money, those with access to money would have many businesses. 

From research most successful entrepreneurs did not have money to start their businesses, some even came out of debt to build amazing businesses generating millions in revenue.

Types of Capital: Ideas

Idea's rule the world.

Ever heard of that phrase? Yes! ideas are the first type of capital anybody need in starting a business. You need to have an idea of what you want the business to be. Would it be a service business or a product business? Or a B2B (business to business), SaaS (software as a service) or TaaS (Technology as a service) business?

Are you manufacture a product or offering unique services?

Fasthire started with an idea to provide career services for young professionals. That idea found several ways to provide it’s services to young professionals in Kwara State. Today the business serves young professionals across the globe.

P.S We provide strategy consulting for Fasthire. You can read the story of how they turned the idea into generating hundreds of thousands in revenue in less than 2 years.

Having ideas mean you need to ask questions that shine a light on the actions you need to transform that idea into a business. You can take out a note book and write down your answers to the following questions or think through them.

What are you doing to generate business ideas?

Such ideas can come from your passion, your skills, your education, or a problem that makes you sick. Write a list of all the ideas that come to your mind. And if you keep reading our resources, we can guarantee that you will turn one of those ideas into a business.

How do you validate those ideas to find the ones that would generate revenue for you? What strategy would you employ to turn that idea in a money-making machine?

Types of Capital: Social Bank

Social banks would help you validate your ideas

By social bank we are not referring to banking activities carried out via social media channels. We are referring to the second form of capital to consider as you think about starting your business.

Let’s talk about social banks (relationships) that you need to start your business. Social bank is a bank that contains your social interactions and relationships with people. It refers to the people in your circle and within your sphere of influence that intersects with your idea.

This is key, because the growth of your business will be built around people – customers, staffs, investors e.t.c. Understanding how to leverage your social bank to validate and promote your business would make your business successful.

Vital questions to ask

Think about everyone in your circle who could be beneficial to your business idea and make a list.

Is there someone who could help you with your business branding in terms of logo design and brochure?

Who could help you with your marketing plan?

Do you have people who would use your products or services?

We hope you are making a list of those in your circle that fit into different areas you would need assistance. How does this list benefit your business?

First you can get your first customer from this list. Someone in you list need the service that you are offering even if they don’t want to pay the full price but at this stage that should not be your worry. The idea is to start the business and get someone to pay for the service or product?

When people in your list patronize you, you can reinvest that money to get other things you need to build the business.

In case of a product, you can be a reseller for existing products before you can validate the business to generate enough revenue to start manufacturing your own. We cannot explain all the dynamics and strategy that you can employ at this phase in one article but the idea is to use what you have to get what you want.

Trade by barter social bank

Imagine starting a business and a friend offer to design your business cards, logo, and brochure and you only have to pay for printing. Such an action would save you thousands of naira and invariably reduce your startup cost and operational (the money you spend monthly in running your business) cost.

One other way to maximize your social bank is to look for skills/services you can exchange for skills/services with those in your circle. If you have a friend that can design apps for your blog in exchange for promotional/advertising space on your blog, this would be a fair deal. You would have to be creative with what you have and what you can offer but like was said this would only be beneficial if you have an idea of what you want.

As an entrepreneur you have a responsibility to grow and invest in your social bank.

Types of Capital: Money

You actually still need MONEY

Having dealt with ideas and social bank, let’s talk about the last type of capital -money.

Without the other forms of capital, it would be difficult to raise money for your business or where you do, you would lack focus of how to deploy that money to generate more revenue. That’s one of the reasons some businesses end up falling even when they have just enough resources to run the business

Nobody wants to lose their hard-earned money to someone who has not done their business arithmetic and assumptions. This is the reason most funding proposal aren’t considered, their assumptions are too bogus, unrealistic and idealistic without considering natural business environments, relations and other ideas in the same market niche.

We would deal fully with some of these on in our articles on business plan. We send out emails of articles to those subscribed to our insight mailing list.

The funds (money) you need to start your business is within your reach, you just haven’t known how to get it yet.

Patent and sell your idea

Have you borrowed airtime from any of the telecom’s network? That is someone’s idea. From an unverified source we found out that the person who came up with the idea was once a banker who thought GSM operators could simulate what banks do when they give out loans. Today he is being paid for that idea. The lesson here is that your idea’s can get you money either by out rightly selling them or selling them to those who are willing to partner with you.

Partnerships & Crowdfunding

Your social bank will come in handy in this phase also. Treat every partnership like a business, draw up proper contracts or memorandum of understanding (MOU). Create opportunity for those in your circle to invest in your business niche. Sell them your business idea, show them how they can invest or own equity in your business and how they can make money from their investments.

If you have a compelling and solid business idea that is well researched, you would have people investing the capital you need to start the business.

Listen to audio on partnerships

Grants opportunities

Lots of organizations are willing to support promising ideas. Even the Federal Government of Nigeria have several programs supporting businesses to grants as long as you have a sellable and workable idea that would employ fellow Nigerians.

Tony Elumelu Foundation gives $5000 seed fund to 1000 entrepreneurs every year. This is a perfect opportunity for people with good business plans

We also update a list of grant opportunities on our grant page. Bookmark the page and check it regularly for grant opportunities across Africa and the world. (coming soon)

Let us know when you start your business

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