Unfortunately, it is a vicious cycle.

One reason we don't have more successful entrepreneurs is that people who want to create something new and better believe they need to spend a lot of money to do it.

And the reason they believe that is they have heard forever "you have to spend money to make money."

It just ain't so.

Let me give you my favorite all-time example of this. It comes from the last company that would spring to mind if you were thinking about entrepreneurship. It is the behemoth IBM, and the story involves its entry into the personal-computer business.

IBM didn't invent the personal computer, of course. The prototype for the industry, the Altair, appeared in the mid-1970s (December of 1974 for those of you keeping score at home). Apple revolutionized the marketplace with the Apple II a little later, and by the time IBM decided to enter the market in 1980, there were already dozens of small companies making personal computers.

But as we have seen, entrepreneurship doesn't have to--and probably shouldn't--come from new ideas, and clearly, the IBM PC was nothing new.

So, how did IBM put together its computer? Not by spending hundreds of millions on manufacturing component parts and hiring people to create the operating software.

It went shopping.

If you took apart an IBM PC, you would see separate components. Few were made by IBM. The company simply scoured the country, buying disk drives from Tandon in California and software from Microsoft in Washington State, and so forth.

Think about that for a minute. Here is one of the most successful companies in American history saying, in essence, it didn't have to reinvent the wheel. There were good components already out there; all it had to do was put them together. It didn't have to spend a ton of money learning how to make disk drives and operating software and the like. It didn't have to do everything itself. It didn't have to spend (a lot of) money to make money. It bought the component parts as cheaply as possible and went from there.

In retrospect, this seems obvious. Yet if you look at the thousands of small companies that fail each year, you'll find there is at least one common thread: They spent money needlessly. Yes, if you are going to be in business, you have to produce a product. But that doesn't mean you have to manufacture it. Yes, your product will have to be packaged somewhere, but you don't have to package it.

Simply put, you don't have to spend money to make money. In fact, you shouldn't. You want to get going as quickly as you can, investing as little as possible.


Published on: Jun 13, 2014
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.