In the average year more than 17 million people will become
entrepreneurs, according to the
National Association of Self
Employed (NASE). By the end of their first year, 8 million of
them will return to the corporate world because their
entrepreneurial effort did not succeed. Many will say the
businesses failed because of insufficient capitalization.
Actually under-capitalization is not the cause of failure, but a
symptom of a far more serious problem.

Many experts will say that undercapitalization is the main
reason for the failure of an entrepreneur to achieve the
dream of having their own business. They will point out that
failing entrepreneurs did not start with a large enough bank
account to offset the period it takes before a business is
profitable. Statistics always back up this theory because,
sure enough, the money has run out before the business is
profitable. Therefore, they argue, the theory must be


The fact that capital ran out before a business is profitable
overlooks other factors having an impact on capital. Yes, the
business failed because it ran out of money, but
under-capitalization is not the culprit. Let me explain.

In 1952, an interstate highway was built to bypass the town
of Corbin, Kentucky. A small motel owner saw this as
potentially the end to his business so sold off his entire
operation to pay outstanding debt. Penniless, he took his
first social security check of $105 and decided to use it to
start a new business.

With no other income, no savings to draw on, this small
check represented his only capitalization. He developed a
product and traveled through the area looking for restaurant
owners that would sell it, giving him just five cents for each
one sold.

Twelve years later he sold his business for two-million
dollars. Twenty years later the business would be sold again,
this time for $840 million, with the stipulation this
entrepreneur would remain the spokesperson. It seemed
appropriate because the inventor, a gentleman by the name
of Colonel Harlan Sanders, had become one of the most
recognized people in the world.

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