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If you are crazy enough, that is. One of the leading reasons that new businesses fail in the first few years of their start-up is due to undercapitalization. Undercapitalization spawns from entrepreneurs often not knowing what in the fiery furnace of paperclips sales they are doing or simply having cheap investors. This often places the entrepreneur in the real fiery furnace of displeased creditors, expecting employees, and sometimes angry family members/business partners.

However, often it's overlooked what genius the proper utilization of undercapitalization can be. Crazy talk? What if the marketing strategy is "We're going to go into this mess without enough money to start." Seems kind of... stupid... but think about it. The main reason for undercapitalizing is the restriction of a low budget or stinginess among owners' with their personal financing funds. But having little money happens. And so does the tendency to penny-pinch for some individuals.

We've all heard of entrepreneurs who can make a dollar stretch a long way, and the truth is, many companies waste a lot of money on unnecessary things. For example, when two businessmen go on a trip to Alaska to meet with an important client, they will stay in separate rooms. If you have the capital... awesome. But, if you are being frugal, this is wasting funds. "But that's madness!!" some people would proclaim. Hey, rumor has it, Wal-mart does it. Okay, bad example.

Sometimes companies will rent office space in the finest part of town instead of in a moderately priced area. In addition to wasting funds on travel expenses, companies will over spend on supplies, business cards, promotional posters, advertising stickers when they could order online from a company like Vistaprint.com and get thousands of cards under $15 in addition to other great promotional products at a price that really puts a bang to the buck. When entrepreneurs aren't in the know, these things can add up to thousands and can be the tipping point in the first few years of business. Some companies even still waste thousands in ad advertising and overlook the all-powerful Google SEO marketing. Not to say print-ads are a dead-end, but to overlook Google (and it's scary to say this) is almost suicide.

All this is to say, for the weather-eyed entrepreneur with careful spending (but not too careful to a point of just being annoying), being cheap and undercapitalizing can make or break a company and in the second or third year of business, executives won't have to sleep in the same double-bed suite and can get the Hilton in Manhattan rather than the Ramada in Jersey City.

 

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