What is capital in business? A friend of mine wants to start a product photography business. She has been trying to start for about six months without making any head way. So I met with her and asked what the problem was. “Capital,” she said.
I smiled and asked how much she needed and for what purpose. She said she needed about N300,000 with which to buy a camera, computer, mannequins, studio lights, a generator and a few other items; rent wasn’t even included in that amount.
So I offered her a partnership. I told her I would give her my old laptop (its specifications can do the job), and while I didn’t have a professional camera like the Nikon camera, I had a 15MP Samsung camera that could suffice. I had a friend who sold mannequins and I could pay him in three months, and there was a spare generator and extra space that I wasn’t using.
You see, I had solved all her ‘capital’ problems without spending a dime. Eight out of ten entrepreneurs will tell you capital is biggest challenge they have in business. Let us start with the basics.
Dictionary.com defines capital as wealth in form of money or other assets owned by a person or organisation or available for purposes such as starting a company or investing. Businessdictionary.com defines capital as wealth in form of money assets taken as a sign of financial strength of an individual organisation or nation and assumed to be available for development or investment.
Capital In Business
The key thing I want to bring out in these definitions is the word ‘assets’. Capital in business goes way beyond money. My friend in the situation above having no money assumed she had no capital. Now that is an error many entrepreneurs commit.
Capital for entrepreneurs comes in five variants: mental capital, relational capital, financial capital, reputational capital and educational capital.
Mental capital is the most superior form of capital the entrepreneur should have. This mental fortitude is what helps you navigate the murky waters of entrepreneurship. The greatest entrepreneurs have this. This is how the likes of John D. Rockefeller, JP Morgan, Mike Adenuga, Tony Elumelu, and so on, built massive wealth. It is a never-settle-for-less, failure-is-not-an-option, impossible-is-nothing mindset. This form of capital pushes you to keep going where many would have given up.
This capital comes from two sources – learning and experience. Learning through books, courses and trainings develops you mentally. Going through and surviving bad experiences also boost mental capital significantly. You suddenly are confident that if I survived that, then this is no barrier for me. Mental capital was what I applied to my friend’s N300K financial capital challenge. By the way she turned down my offer.
Relational capital in business
When I was going to start my first business that I needed an office space for, I went to two uncles who had offices in business districts. The first said no; the second allowed me to use his office boys quarters. That same space would have cost me about N500,000 in rent every year. But I got it for free because of relational capital.
I know a man who imports generators from China. The Chinese manufacturers give him ten containers of generators on credit. He sells and then remits money to them. Even with his modest estimates, ten containers will cost him twenty five million naira. Protect your relationships, especially with family and close friends. They are your biggest allies in your early days in business.
While relationship capital might have opened the door for the man who imports generators from china, reputational capital has sustained him. Reputational capital takes you further than relationship capital.
Your reputation in business is everything. It is your most dominant and consistent behaviour. Your staff see it, customers see it, your suppliers see it and your competitors also see it. You build reputational capital by being consistent with the right values and principles and should you have bad reputation, simply commit to acting consistently with right principles.
The young boy who works as an apprentice for three years before setting up his business, the guy who goes to pursue his master’s program in a particular field, or a woman who takes a six-week crash course in makeup artistry, baking, etc. are all building up educational capital to be deployed in their business. Building educational capital should be a lifelong commitment considering the rate of change in many industries today.
It needs no introduction; it is the only type of capital known to many. This is cash, and they say cash is king. True, cash may be king and the other forms of capital are also king makers. Cash is the fuel that powers the engine of your business and its importance cannot be overstated. Plans remain exactly where they are on paper without the cash to push them to reality.
Anyone who tells you money is not important in business does not tell you the whole truth. It is important but you shouldn’t also believe anyone who tells you money is the only thing that is needed for you to be successful in business.
As important as cash is, one should not get locked into looking at business expenses from a cash only paradigm. There are alternatives to cash and there are things you could exchange value with when you don’t have cash.
Never get scared to offer alternatives to cash when you don’t have cash. What do you have to lose anyway? Propose differed payment or installments or direct exchange of product and services. In exploring options, you draw on your mental capital which in my opinion is the most important form of capital an entrepreneur needs to succeed.
Ted Turner the founder of CNN was asked what he would do if he lost all his wealth. He said he will make double back in half the time, starting with nothing. That is a guy with massive mental capital. Capital isn’t money in the bank, it is your mindset and the knowledge you carry in your brains. The deposits you make in those places will allow you make withdrawals of cash.