Which is more important: capital or business model?

The student with a clever idea for a business, the office worker who has been dreaming of starting a unique pastry shop, the OFW  who has been living poor so he can save enough money to start a business -- all labor under the assumption that it takes money to make money. I, too, believe that money begets money because capital is where the energy of an enterprise comes from. It’s not the only source, of course. An inspired business model, determination to succeed and all that are all folded into the business enterprise. But when it comes to money and capital, either you have it or you don’t have it. Cynthia Baello, in “From P200 to riches”, an article from the Philippine Daily Inquirer, made me think again. She started her business with P200, and grew it from there. This story has several business lessons for everyone. First, a mother’s protective instinct is probably one of the strongest power on earth.

“Baello, 58, said she used to go to the bank to check if she had money from her husband who was then working in Bahrain -- only to find out there was none. This would send her to fits of nervous anxiety, thinking of where to get the money to pay for water and electric bills. She told herself she did not want that kind of a life. “Naawa ako sa sarili ko” [“I felt sorry for myself”], she said.”

From a desire to be self-reliant was born a business built up not by capital but pure, dogged determination and frugality. As has often been discussed in this forum, the ability to survive at all cost is another business lesson in Baello’s story.

“In the 1980s she already had a stuffed toy business, but the entry of products from China into the local market forced her to abandon her business. Chinese products were priced so low, she said, that she, along with hundreds of other stuffed toy makers in Tarlac province, could not compete and had to find other means of income. Baello’s eagerness to join her first trade fair in 2003, to be held at the SM Megamall in Metro Manila, prompted her to revive her small business formally. But just as she was about ready to showcase her wares, disaster struck. She needed money not only for the raw materials for her items but also for the rental of the stall to be used in the business fair. But the loan application on which she pinned her hope was rejected. She was near tears as she walked home. She was praying, “Lord, i-lead Ninyo ako sa mga taong tutulong sa akin.” [“Lord, please lead me to the people who can help me.”] Along the way she noticed people milling about in front of an office building on F. Tañedo Street. It was the Tarlac branch of a microfinancing organization called Alalay sa Kaunlaran sa Gitnang Luzon (ASKI). Established in 1987 to “serve and empower the poor through micro-enterprise development,” ASKI is a Philippine partner of Australia-based Opportunity International, one of the world’s largest microfinance organizations. The group uses the slogan, “Giving the poor a working chance.” At the time, however, Baello didn’t know these things, and so she asked around until she was told to see the manager. During her interview with the manager -- which she opened by asking, “Ano ho ba ang business ninyo? Puwede ho bang umutang dito?” [“Sir, what kind of business do you have here? Do you make loans?”] She told him of her situation. The manager was immediately sympathetic and, when she asked how much she could borrow, he said she could start with P10,000.”

Another business lesson is to join trade fairs. Baello’s business began seriously growing after she joined trade shows. More people found out about her products, her market grew and she paid her debts. She also shares that it is important to “listen to customers” and give good customer service. You could say, she grew wings from a 200-peso capital. So which is more important: capital or a good business model?