Everybody has to start somewhere. It doesn’t matter if you are Google, Adidas or Apple, your roots were planted as a startup business. Like all these businesses, you start on a relatively level playing field, with an idea. The next step is getting funding and investments, to help that idea grow. However, this is where problems arise, as the excitement of a new idea can lead to mistakes in handling finances, and as a result your startup suffers. To avoid such problems, I’ve listed the three most common financial mistakes I see startups make.
Over-investing In The Wrong Areas: One thing that is absolutely vital when building a startup is developing the product you are going to offer up to the world. This is where most of your money should be going, into making your flagship product/s as good as possible. However, all to often startups focus their efforts in other areas, that whilst important, should be a secondary focus.
Here are some areas that commonly see over-investment:
- Training and Conferences – Getting out and learning about all the new innovations in your sector can be vastly important for developing and growing as a startup, but conferences, workshops, networking opportunities, etc, can all cost a healthy sum of money, especially when you take into account potential travel costs. If you find you are having to make cutbacks to the development of the startup, avoid investing too much on these types of events. Instead, only attend the largest, most influential ones.
- Websites – A sleek website is at the forefront of every major company, but these sorts of sites cost thousands. Granted, if your startup becomes successful, a good website will prove invaluable, but while you are in the early stages, it’s simply an unnecessary expense. Instead, go for something simpler. Template websites can have a smart, professional look, complete with contact pages and e-commerce without costing big bucks.
- Long-Lease Office Space – Right, you’ve got your idea, you’ve got investors. Now is the time to lease out that office space and get to work, right? Absolutely! (You thought it was going to say wrong, didn’t you?) But, don’t get too comfortable. Startups stand on notoriously shaky ground and committing to a long-term lease contract could well be your downfall. If, for whatever reason, you get three months in and need to move offices or find the office space is inadequate or unnecessary, well tough. Given the ever evolving space a startup usually inhabits, you don’t want to limit yourself by nailing down contracts. Instead, look for short-term office leases.
Some might argue that it is important to invest in these types of areas early on, as to avoid having to develop once products are launched, but consider this. It is the very nature of a startup to have adaptive ideas that change and grow with development, testing and feedback. What if you were to pay for an expensive website only to completely change your idea, and thus render said website useless? Until your startup becomes a fixed idea, the focus of investments should be on producing something worth investing in.
Launching Too Quickly: It’s all too easy to get excited about your idea and just hurl it out onto the market because you are sure everybody else will feel the same way. This, however, is a huge mistake. The product, the service, whatever you are offering has to be tried and tested to the breaking point. If you are just too eager to get your product out there and see how it’s received, you could be in for a nasty surprise for two reasons.
First of all, if you haven’t spent enough time testing your product, you may discover that users are finding faults with it, leading to an embarrassing and costly recall as well as having to issue refunds. Furthermore, you may find that the product isn’t fit for purpose, be it that users simply don’t like it, or that a competitor is doing it better, because you didn’t take the time to understand your market.
Both of these problems are financially costly and also damage your startups reputation; which can lead to more financial problems further down the line. You may have something you feel is great, but until it is 100% ready to go, keep it under wraps.
Focusing On Profitability: When creating a startup company, it’s vital your ask yourself this one all important question: why am I doing this? If the answer is because you simply want to make money, drop everything now and move on. Find another, already established business and take your ideas there. While it is true, that every big business drawing in billions a year was once a small, startup business, they didn’t just grow overnight. They were nurtured and cared for, often over decades, to reach the point they are now.
Of course, some startups can be massive right out the gate, cause a huge upset in the business world and are bought out for millions before their first birthday, but this is incredibly rare. More likely your business will be a slow-burn, and this is something you must be prepared for. Years can go by without making profits and the whole process can be a slog. Thus, you have to be dedicated to the project, it has to be something that you will give everything to, regardless of its potential for making money. If you aren’t dedicated, if all your mind is thinking about is the figures, then it becomes all too easy to get disheartened and look to the next money making idea and then lose all the time and money you’ve already invested.
Take Microsoft as an example. The company was founded in 1975, but it wasn’t until 1986 – 11 years later – that it become highly profitable. You think Bill Gates would have hung around if he was only concerned with being one of the wealthiest people on the planet?
