Using the Concept of “No Money Down” to Grow a Startup Business

Just about everybody has heard of the term “No Money Down” loans for purchasing real estate.  No money down is the pure leverage of money. Your return on “No Money Down” is infinite, since you have not put any money down and as long as the property is cash flowing, you have money coming in your pocket.  If done correctly, you can become very wealthy using this one technique.  However, lately, it is clear as to how the leverage of debt can be a bad thing based on all the shortsales and foreclosures going on right now in the economy, but let’s just discuss the positive side of leverage in this post.

In fact, the reason private equity real estate funds do so well is that they not only take on equity investors, they often leverage those funds again with debt (i.e., leveraging twice).  This is close to the “no money down” concept, except it is done in the hundreds of millions or even billions of dollars.

So how do you apply such a principle in a business?  Basically, you minimize the risk to near zero, while maintaining the maximum upside.  Then, rinse and repeat.

Example 1.  Let’s say you have great knowledge of website development and monetization.  Basically, if someone gave you a good domain, you have the knowledge and experience to instantly turn  that domain into profitable business.  The domain doesn’t have to be a multi-million dollar domain if you are good at this.  So, the next thing is to target a domain owner who is currently parking a decent domain (one that is worth $25K to $100K).  Next, you work out a 50/50 deal where you build out the domain for the domain owner where you are responsible for all the web development work and they pitch in the domain.  Voila, you now have a 50% ownership in a company with no money down for the purchase of the domain.  If you do this with a domain that is valuable enough, this could be quite profitable.  The catch here is that you must be able to demonstrate you have the ability as no domain owner would trust a rookie with this idea.  Then, you find other “partners” to do this with until you graduate into the larger multi-million dollar domains.

Example 2.  You have a product that can be dropshipped directly to the customers.  It can be boa constrictors, it doesn’t matter.  You put up some simple ecommerce site, sell the product, and the product gets shipped directly to the customer.  Your only investment is your time into building the website and some Google Adwords.  But no money is spent on inventory.  You can do this successfully with information also.  There’s a national company called Direct Buy.  All they do is show people magazines of product that you order for wholesale and they make about 7% processing for the access to the products plus an annual membership fee.  There is very low cost to this type of business once the systems are in place.

Example 3.  Let’s say you are starting up a full-service stock brokerage.  There is a lot of risk in this type of business because of the huge expenses of the startup, while you are building out your team and revenues to overcome the expenses.  Instead of going for 100% ownership of this enterprise, why not target 10 (or 20) heavy hitter stockbrokers who work for some other brokerage and bring them in for say 50% of the company.  You just gave up half the company, but you reduced or eliminated the risk of catastrophic loss.  Once the operation is growing, repeat the process in another location.