22 Mar 6 Ways To Avoid Wasting Your Startup’s Seed Round of Funding
“Setting goals is the first step in turning the invisible into the visible.”
— Tony Robbins
Too often, “funds raised” is used by companies as a mark of accomplishment. It’s important to understand that raising money for your business will not solve any of your startup’s current problems, nor will it determine your long-term success. Instead, it will only uncover and amplify problems that already exist within your startup. This means that before you accept a single dollar from an investor, you and your founding team should audit each aspect of your entire team and business to uncover problems that could destroy your company in the future.
In January, I wrote about how and why most startups burn through their first round of investment. After explaining how and why startups waste the capital they’ve worked so hard to raise, I thought it was important to write a follow-up on the how to avoid it.
Here are six ways you can avoid setting your early startup funds on fire:
1. Set Your Startup’s Priorities at the Start
To achieve a goal, you need to know what that goal is, plan out the steps needed to achieve it, and take action. To avoid wasting your startup funds and running your business into the ground, you also have to know which steps are the most important to get right and allocate your time and your resources accordingly. If you’re building an a mobile app, then development is going to take priority over marketing at the very start until you have a product that your target market loves.
Take a minute to write down the five most important things you need to get right in order for your startup to succeed. Keep this list in mind when planning, from hiring to budgeting. Make sure that you are spending your time and money on the things that matter most to your business, not wasting it on something that could wait until later.
2. Identify Risks Early and Limit Their Impact
You can’t plan for every situation your business may face in the future, but strong founders and a capable team can foresee potential problems and plan in order to limit their impact.
For example, if your business is in technology and relies on a platform, whether it’s Facebook, LinkedIn, or the App Store, it’s inherently subjected to platform risk. A change in that company’s policies or a decrease in its popularity could leave your business helpless. Limit these types of risks and create a backup plan in case the worst case scenario happens.
3. Make a Real Budget and Trust Someone Experienced to Oversee It
Every startup has an idea of what the money they raise will go to, but sometimes it’s just an idea, and ideas change frequently. A good budget shouldn’t. It needs to be carefully created and managed by someone who is naturally gifted and experienced at budgeting.
If you have trouble budgeting, be honest with yourself and get the help of someone who can guide you and your company through the financial planning of your business.
4. Get Experienced Advisors You Hate
No one likes being told no, but sometimes it’s needed. One of the benefits of being married is having someone by your side who will tell you no when you have a bad idea or are straying away from your original plan. The right advisor, who you will probably both love and hate, can play that role in your business. This advisor should be able to keep you accountable and tell you the truth even when you don’t want to hear it.
5. Outsource Tasks Outside of Your Team’s Expertise
Outsourcing is a dirty word for most businesses, but finding creative and reliable solutions is one of your jobs as an entrepreneur, and you will almost certainly want to outsource tasks in your business. If something that needs to be done within your business is not in your personality or your skillset (finances, sales, customer service, etc.), then why would you do it when your time and skills are better used in a different area of the business? Instead, hire or outsource those tasks to someone you can trust who has a track record of success handling this type of role.
6. Build a Runway Twice as Long as You Think You need
Many early-stage companies raise enough money to last a year or two and then start the process all over again. One of the best things you can do for your business early on is to create a long financial runway, meaning that even with no or low sales, your business can fully function for more than a year, and if possible, more than two years. This move will give your startup enough space to experiment, fail, and recover.
As an example of how valuable a runway can be for your business, imagine you’re starting a tech company that’s developing an app for consumers. You test the idea, develop the app, and a year later you finally launch the product. You’re having a hard time acquiring users but notice that businesses are unexpectedly starting to use your app. Just as your first round of funding is running out, you decide to iterate and change your app to focus on businesses instead of consumers. Without that runway, you will have an extremely hard time fundraising after changing your idea and with little to no traction.
Build a long runway. Just remember that building a runway will only work if you’ve budgeted carefully and can stick to that budget, at least within reason.
Need help making the most out of your fundraising efforts? Let’s talk! Email me at Michael@ConsultStraza.com to get started.
- Startup Fundraising: How We Spent Our First $250,000 (SlideBean)
- 21 Tips for First-Time Entrepreneurs (Entrepreneur)
- 10 Startup Tips Learned the Hard Way (Entrepreneur)
- 17 Key Lessons for Entrepreneurs Starting a Business (Forbes)
- Startup Spending Guide: Where To Spend Your Money (TechCrunch)