Is Your Business Idea Capital-Intensive or Capital-Light?

In years of consulting with large corporations, I learned a few things. Purchasing inventory requires a lot of capital, and companies sometimes struggle to unlock that capital. They often resort to selling inventory at a loss just to get their capital back. Warehousing inventory is another financial burden. Leasing space to house inventory and hiring people to manage the warehouse is a big expense.

When I started CCAW, I had all these things in mind. I knew I wanted to help consumers acquire the parts they need, but I didn’t have the capital to accomplish this in the traditional manner. Bootstrapping forced me to get creative. I found ways to leverage the existing warehouse infrastructure and inventory of suppliers and manufacturers. We did it manually at first, but once we figured out the winning formula, we built technology that allowed us to scale it. We were able to do this in a very capital-light way (relative to others in our industry). Most of our capital went to hiring people and building technology.

Entrepreneurs setting out to solve problems should think about the amount of capital required. Will you need trucks, machinery, inventory, or legal help to bring an MVP of your solution to market? What else?

Most businesses will fall into either a capital-light or capital-intensive bucket. Great businesses can be built either way, but knowing early on which bucket you’ll be in is important. The amount of capital required will have a big impact on things like company strategy, your ability to raise capital from investors, and barriers to your entry.

If you’re thinking about entrepreneurship and have a solution in mind, take the time to understand whether it’s capital-intensive or capital-light. This will have a big impact on your decision-making!