Do You Have the Capital to Start a Business of Your Own?

It takes capital to start a new enterprise. Yet capital is more than just money. It comes in several other important varieties too:

• Intellectual capital is made up of the experience, knowledge and skills that reside in your startup team. Groups with rich intellectual capital have tremendous collective energy. They can accomplish far more than the same individuals ever could on their own.
• Social capital embodies all the professional, personal and social contacts that serve as resources to you and to your team. As the old saying goes, “It’s not what you know, it’s who you know.” Even though that saying is not strictly true (what you know is critically important too), it does contain an element of truth.
• Human capital refers to the knowledge, experience, training and skill set that you, your employees, your partners and all others bring to your venture. Remember, human capital is vitally important because it can be used immediately, during your launch phase.
• Cultural capital is knowledge about cultural norms, preferences and standards. It can be knowledge about demographic groups, communities, organizations and market segments. This is the last kind of capital that most people weigh when they are contemplating a startup - yet it can be the most critical in today’s crowded marketplace.
• Financial capital is money - the capital that most people think of first. Yet it is more than just cash. It actually comprises: 1) Any direct contribution of money or assets that you and your teammates make; and, 2) Potential funding that you can obtain.

How to Unlock the Potential in Those Capital Forms

New organizations have another asset too - one that enables them to maximize the value of the five forms of capital that I define above. This extra asset is sweat equity.

Sweat equity is a catchall word that encompasses all the hard work and time that new entrepreneurs invest in getting their new enterprises off the ground.

There is value, after all, in simple hard work. It can mean working consecutive all-nighters to meet a deadline. It can mean pulling out all the stops to get a meeting with an investor or a new client. It can mean answering your cell phone in the middle of the night to answer a customer’s concern.

If you apply sweat equity to maximize the return from your capital resources, your new enterprise can become a potent new force in the marketplace. You will be starting your new enterprise not from the bottom of the success ladder, but from a leveraged position, well on the way to the top. And what could be better than that?

Editor’s note: For more great insights from Dr. Randal Pinkett, spend some time with his excellent book Campus CEO: The Student Entrepreneur's Guide to Launching a Multi-Million-Dollar Business.