01 Apr 8 Signs Your Startup is on the Wrong Path
To go from startup to thriving business, everything has to be perfectly aligned. Your company needs great products and services, a well-constructed team, and effective messaging that reaches your target market. A single mistake could end, or at the very least stall, your progress towards your goal(s) as a company.
Imagine the parts of your business as dominoes. To reach your goal, let’s say your goal is to exit via an acquisition in five years (sell your company to a competitor), each domino needs to line-up perfectly with the next one to lead your business through the steps needed to execute perfectly. If one of your dominos is placed a little too far away from the next one or too far to the left or right, progress stops.
Here are eight signs that your dominoes are set up all wrong:
Each role and task within your business needs to be prioritized in order of its importance. For example, if your startup is a service-based business providing guides on how to build a website, then marketing and product development (creating new and better guides) should be prioritized over other functions. Don’t overlook them because your business will rely on these two efforts. This doesn’t mean you should neglect accounting or your HR department, but it does mean you need to focus on the functions of your business that will most determine your success or failure.
Your Runway’s Too Short
Nothing will put an end to your line of dominoes faster than running out of table space. Your runway is the amount of time you have left before your business runs out of money, and it relies on your available funds, burn rate, and revenue. If you don’t have a handle on your spending and current standing, your chances of making it off the runway before it ends, and ultimately, surviving, are small.
At your current level of spending, how long can your business survive without an increase in revenue or raising a round of funding? If you don’t know how long your company can survive, take action to organize and study your financials to figure out how long your runway is.
Sales is Not a Priority
If you listed the top ten priorities in your business, how long would it take to get to sales? If the answer is three or more, your priorities are leading your business in the wrong direction. You need to sell, and use that revenue carefully, to survive.
There are a few exceptions to this rule. For example, if your startup is a specialized tech startup, like a social network, dating app, or community-based product or service that relies on having a large user base in order to monetize, you might not be able to “sell” anything at the start. If this is the case for your startup, fundraising needs to be a priority. You will need to be prepared to show investors how you will sell your product or service when possible.
When it Comes to Processes, You’re Just Winging It
A process in your business is “an activity or set of activities that will accomplish a specific organizational goal.” Notice that a process isn’t “winging it until you get it right and then repeat.” Important parts of your business (accounting, HR, legal, on-boarding, marketing, etc.) should all have processes based on your goals for each.
For example, let’s say you own a construction business where employees are traveling in company-owned trucks to work-sites. You don’t have any policy on what’s expected of your employees in regards to vehicle use, and years later, you discover that employees have been smoking in the trucks (lowering the value), driving them home instead of back to work (wasting gas), and letting fellow employees who aren’t covered by your insurance drive the vehicles. Overlooking putting a process in place for something as simple as proper use of company-owned vehicles can be a very costly mistake.
Budgets Aren’t Re-evaluated Regularly
Well-prepared startups have a budget detailing the expected cost of each key area of the business. But far too often, once the budget’s set, it’s not routinely scrutinized and updated throughout the year. Without revisiting the budget, it will likely spend itself, whether it was the best use of your company’s money or not.
For example, let’s imagine your tech-based startup has budgeted $80,000.00 for legal expenses. If you don’t need the full allotment, which should be clear to you a couple of months into the year, this money should be moved from legal to other areas of the business where it could make the biggest impact. Make sure someone trustworthy is in charge of overseeing and adjusting your startup’s budget, and looking for ways to cut costs and move money around to best help your business grow.
Avoiding Tasks or Company Roles Because of Financial Restrictions
The price of something is never equal to its cost. Saving money on a cheaper version of a piece of software or doing something yourself rather than hiring someone else to do it isn’t always the best decision to make. Early-stage companies often lose hundreds of hours and become too distracted while taking on tasks that they shouldn’t be doing and by trying to save money. Time is money, spend it wisely.
You’re Only Hiring Freelancers and Consultants
Utilizing skilled freelancers and consultants can help cut costs and get tasks completed quickly, but it also overlooks the importance and value of building a team of employees. Employees are invested in your success, know you and your team, and are more likely to go above and beyond than what someone you’re paying job to job will do. Carefully balance your use of freelancers while bringing in employees who can grow with your company.
Growing Through Hope, Luck, and an Amazing Product
Early startup “success” can mislead your company to double down on what’s working and ignore impending doom. Say your first product explodes in popularity. You double your staff, invest heavily in the next version of the product, and then it fails miserably. Three months later you’re out of business because you relied on the success of your first product instead of investing in building the business around your product.
A product can take off without a lot of formal structure in place, but doubling and tripling in size requires expanded facilities, support, and resources. Growth takes planning and careful execution.
What questions do you have about small business and startup growth? Comment below or visit the ConsultStraza.com contact page to send me your questions.