Typically, the priority for startups is to get off to a flying start and keep on growing at a fast clip thereafter. Unfortunately, this calls for a lot of cash to be plowed into the business, which proves to be typically very tough for entrepreneurs without a track record. A CB Insights study reveals that lack of cash was the second-most significant reason for business failure after lack of market potential.
According to https://www.forbes.com quoting the same study, “70 percent of upstart tech companies fail, usually about 20 months after first raising financing. The failure rate is even worse for consumer hardware startups with 97 percent of seed crowdfunded companies failing.” It is, therefore, very important for startups to adopt a very lean approach to operations so that they can conserve as much cash as possible while continuing to pursue growth and market share. Some tips from experts:
Focus on What Competencies the Business Requires Rather Than Who Will Deliver Them
One of the most common mistakes that startups make is to decide who will be in the key management positions instead of analyzing what the business really needs. While it is important to the entrepreneur to like the people, he brings on board, it can translate to very torrid time if he collects a set of people who, however well-meaning, just do not have the required competencies to make the business grow. In a competitive environment, the negative impact of not having the right management can be very costly indeed.
Try Doing before Deciding to Outsource
In today’s business environment there’s hardly a function that cannot be outsourced. However, it is very important for startups to try and undertake the function in-house so that you know what the complexities are and how much it costs. If you are not familiar with the task, you may easily overestimate its level of complexity and end up awarding very expensive outsourcing contracts that can drive your business into the ground. Being familiar with the job will also enable to set very clear performance benchmarks from the outsourcing company that you choose to hire.
Allocate the Minimum Budget for Certain Activities
You can turn the shortage of cash into a positive feature by some amount of lateral thinking. While giving employees good lunch facilities at work is taken to be an essential perk, for startups it can be a very expensive thing, therefore, instead of spending a lot on lavish meals, encourage staff to bring in lunch and engage in a potluck exercise.
Not only does this reduce the pressure on the cash but also fosters great bonding between the staff members that have a positive fallout on the quality, productivity, and general office atmosphere. You can also check out discounted furniture instead of emptying your bank balance or running up credit card debt that can be very difficult to get rid of. If you pursue these activities with enough enthusiasm, you will make simplicity at work par for the course and actually end up fostering bonhomie at work.
Don’t Skimp on Brand Building and Money Management
Among the many pillars of a successful business, proper branding and efficient money management are unarguably the most critical. Even when you are desperately short of cash, it is not a good idea to cut back on the spending on branding exercises as it is the only way you will be able to support steady sales that will keep the business functioning as intended.
Similarly, the business will come to a grinding halt if you run out of money so treat money management as an essential function and have someone responsible for keeping up steady cash flow and arranging for additional funds for making the enterprise grow. Having a sub-optimal resource due to lack of budgetary support will spell trouble that you surely do not want.
Make Marketing and Sales as Important as Technical Competence
Since most startups are set up by technocrats, there is usually more emphasis on acquiring certifications and upgrading the technical skills of the workforce in the conviction a better product will automatically be able to draw adequate customer traffic and generate the required sales.
However, it is a hard truth of life that sales can usually be achieved by having a proper marketing function that is motivated to generate leads and achieving a superior sales conversion. Startups will do well not to ignore the importance of the sales and marketing function and allocate adequate funds to it for continued profitability.
Operating a startup requires diverse competencies and it is simply not possible for the entrepreneur to have all the required skills on the payroll. Fortunately, there is the opportunity of engaging consultants for just about any skill that you want on a need basis, sometimes even for very short stints. You can engage consultants for a relatively smaller investment and get upgraded skills onboard in domains like branding, marketing, social media, finance, accounting, human resource, law, etc.
Take Quick Decisions
Everyone knows that there are certain decisions that need to be taken yet it is very common to waste massive amounts of time and money trying to arrive at the decision. Typically, even for critical decisions, you tend to procrastinate until you are forced to take the decision due to a looming crisis. In the meantime, the delayed decision may have cost you a lot in terms of money or market presence.
Contemporary markets are exceedingly competitive and the delay of weeks if not months would have needlessly cost a significant amount. The best way of taking financial decisions is to do it after studying whether the cash flow will permit it. Adopting this method allows small business to manage their growth without getting into a financial mess.
It is not easy being a startup owner. While you have a rapidly changing market to cater to, the shortage of cash prevents you from going full out when you need to. You have to be really nimble and work with a set of people who have the competencies that are required. Focus on brand building and managing your money right so that you have a good sales order book and strong cash flow. Engage in team building in a number of small ways and you will have built a flexible but profitable business.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including money saving, Budgeting, business debt consolidation, business and start-ups.