Billionaire entrepreneur and “Shark Tank” star Mark Cuban strongly believes in financing a startup. According to him, “Only morons start a business on a loan.”
Cuban believes that taking out a loan to start a business is a bad idea because it adds unnecessary risk, saying, “There are so many uncertainties involved with starting a business. Yet the one certainty that you will have is paying back your loan. The bank doesn’t care about your business.”
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He points out that loans are a cash drain with personal guarantees and collateral requirements. If the business doesn’t succeed, the entrepreneur’s financial stability is at risk.
“The best way to start a business is with as little money as possible,” Cuban said during a South by Southwest (SXSW) panel. “Preferably money that you saved up or with no money. You're selling a skill you have, and you start slowly. That's what I've always done. Starting with nothing is where the big bucks are made for real.”
Cuban emphasizes that America thrives on entrepreneurship, especially during tough times. He explains that people often become more creative and resourceful when faced with challenges, which fuels the success of many businesses.
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That’s why Cuban’s advice is clear: avoid loans and start small. After all, many of the most successful companies, like Airbnb, Uber, and Facebook, began with minimal capital and grew into multibillion-dollar businesses. He suggests using personal savings to kick-start your business, allowing you to maintain control and maximize potential profits.
“99% of small businesses you can start with next to no capital. It’s more about effort,” says Cuban. “Small businesses don’t fail for lack of capital. They fail for lack of brains. They fail for lack of effort. Most people just aren’t willing to put in the time to work smart.” He believes many entrepreneurs underestimate the hard work and dedication required to succeed.
He has another warning for new entrepreneurs: “If you start a business, you better know your industry and your company better than anyone in the whole wide world because you’re competing. To think that whoever it is you’re competing with is just gonna let you come in and take their business, obviously, that’s naive. I think most people don’t recognize that if you’re going to compete with me and one of my businesses, you better realize that I’m working 24 hours a day to kick your ass.”
Cuban's own success story supports his advice. He started his first company, MicroSolutions, with his own money and sold it for $6 million. Later, he and his friend Todd Wagner invested $10,000 in a small startup, which they transformed into Broadcast.com and sold to Yahoo! for $5.7 billion.
“If you find something that you like to do or love to do, be great at it and see if you can turn it into a business. Worst case, you’re gonna have fun doing what it is you love to do. In the best case, you can turn it into a business,” says Cuban.
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