Alan Donegan at work
It’s a truth universally acknowledged that an entrepreneur in possession of a business plan is more than likely to be on the lookout for the funding required to turn vision into reality. The required capital could come from “friends and family,” a business angel, a seed fund, or a grant, but very often the first port of call will be a local bank. As a result, a lot of business owners start their entrepreneurial journeys with substantial debt repayments taking a healthy chunk out of their monthly revenues.
Alan Donegan wants to challenge the view that would-be business owners need to raise capital – and particularly debt capital – to get them started. In his view, it’s perfectly possible to start a viable, and ultimately flourishing business without any recourse to borrowing at all. What’s more, as co-founder of the PopUp Business School, he has carved out an entrepreneurial career of his own by showing aspirant entrepreneurs how to launch into their chosen markets without recourse to third-party finance.
When I spoke to Donegan last week, the PopUp Business School was facing its own financial challenges. Thanks to social distancing rules imposed in the U.K. and the U.S., the company has been unable to pursue its modus operandi of delivering business education in public spaces such as vacant stores in shopping malls. Instead, Donegan and his teamare hosting events via twice-weekly webinars. Meanwhile, he hopes that a series of podcasts – dubbed the Rebel Entrepreneur – in partnership with U.S. platform, ChooseFI.com will project the “no debt” philosophy to a global audience.
But is this a good time to be encouraging people to start their own businesses? And is Donegan right to say that raising debt capital is something that should be avoided?
An Aversion to Debt
Donegan has a genuine aversion to debt finance that is informed by his own experience of growing up in an entrepreneurial family that found itself coping with the consequences of business bankruptcy.
Thus, when he decided to start his own business and subsequently sought help from the U.K. Government-sponsored Business Link service, he was less than impressed with the advice on offer. “It was all about putting a business plan together and borrowing money to get started,” he said.
Taking the view that there had to be another way, Donegan voiced his opinion back to Business Link and eventually met up with Simon Paine, one of the officials leading the program. After discussing ideas they agreed to set up the PopUp Business School. As Donegan puts it, the aim was to “change the way that entrepreneurship was taught.”
So what does that mean in practice?
A New Audience
To some degree at least, the PopUp Business School has set out to engage with people that other business coaching ventures tend not to reach. The School’s events are free to participants and paid for by organizations, such as local authorities and housing associations. This approach has drawn in participants – such as housing association tenants – who wouldn’t necessarily access entrepreneurship coaching elsewhere. And crucially, according to Donegan, the no debt message resonates with this audience.
“A lot of people would be deterred from starting a business by the idea of taking on debt,” he says.
Donegan argues that with a bit of imagination and effort, debt funding can be avoided. He cites the example of two alumni of the School who set up an escape room business. “Normally for that kind of business you would find premises, take out a lease and borrow to pay the rent while building the business,” he says. This was avoided by finding a hotel with an unused room and negotiating a rent-free deal for a limited period, allowing the business time to build its client base and start to earn money. It’s an approach that Donegan says can be used in a great many circumstances.
Now it has to be said that some businesses lend themselves to a debt-free startup better than others. To take two extremes, a window cleaner can probably launch for next to nothing by buying up a few pieces of equipment and then going door to door to market the service. On the other hand, if your plan is to create a manufacturing facility based around 3-D printers, you will probably need to raise cash to hire skilled staff, buy equipment and move into suitable premises – unless of course, you happen to have deep pockets.
Nevertheless, even if the business you plan to start is capital and labor-intensive, there are probably deals that can be struck to keep costs down and reduce the amount of external finance required. Bootstrapping is not a bad thing to do.
The Corona Crisis
To date, the PopUp Business School has educated around 7,500 people not just in the UK but elsewhere in the world. But plans to build momentum further were delivered a severe blow by the Covid-19 crisis.
“We were slaughtered,” says Donegan. “We lost $300,000 in orders with no idea where the next piece of business would come from.”
One of The PopUp Business School’s first moves was to create a Covid-19 survival guide, which was posted on its website to help business owners. But in the meantime, it had its own wellbeing to attend to. In theory at least, sessions could be moved online, but that would require buy-in from clients. The first breakthrough has come in the form a live stream funded by Westminster Council.
Time To Flex
And in Donegan’s view, this is a time for businesses to show some agility. “In most cases businesses should be able to flex,” he says.
And perhaps counter-intuitively he says that this is not necessarily a bad time to start a business. For one thing, crises always throw up opportunities. And this may also be a good time to contact potential partners or customers who themselves might be looking for ways to maximise future revenues. “There has probably never been a better time to get someone on the phone,” says Donegan.
Fortuitously – because planning began months before the crisis – Donegan has just begun a series of Rebel Entrepreneur podcasts on ChooseFI. Launched in 2017, by Jonathan Mendonsa and Brad Barrett, the platform’s podcasts have been downloaded more than 15 million times in 190 countries. Donegan says the popularity of ChooseFI offers a chance to reach many more people than would be possible through face-to-face events.
These are difficult times for any business – let alone one that has traditionally brought people together in physical spaces to teach entrepreneurship and instill confidence. But then again, against the backdrop of Covid-19 a philosophy of seizing opportunities while keeping financial risk to a minimum seems very much in keeping with the times.