Running out of cash early on in a startup does not spell doom for a large proportion of entrepreneurs, who are accustomed to lean operations and know several channels for procuring additional funds. Unfortunately, this can not only lead to ignorance of some core problems in their plans, it can also create needless financial stress for their families, friends, and ultimately themselves. Just like any industry owner, entrepreneurs need to know how to deal with a negative revenue stream.
Don’t run before you can walk
Startups should be the epitome of cost-efficiency, so adopting a big-business “let’s-pour-cash-on-it” approach for solving problems is nothing short of criminal. It is common for startups to focus on improving features and adding services when some of their fundamental functioning is wrong. Money can’t solve all startup problems, but introspection and fixing basic shortcomings will solve most.
One of the most well-known examples of startup failure, Friendster was a highly popular social networking site way before Facebook and Orkut, which began to experience slow website loading times due to increased traffic. Rather than trying to fix this problem, the owners started spending on hiring better management and developing features comparable with those of emerging faster, more popular competitors such as MySpace. Widely regarded as having missed the train – being worth less than $20m at the time when MySpace was worth over $500m – only recently are its engineers focusing on improving loading times.
Entrepreneurs are trained to think outside the box. This can lead to the blurring of several lines and a willingness to adopt stressful and damaging habits. Startup horror stories commonly begin with starry-eyed startup owners running out of savings as they pump money into a promising idea, only to run into failure. A loan from family members fails to rescue the startup, as do loans from friends, which lead to highly awkward social lives, strained relationships, broken friendships and a deep sense of shame.
Entrepreneurs must realize that devoting themselves fully to their startup should not entail these things. Use fewer loans and more of your savings to encourage conscientious spending. It is important to separate business spending from family spending, and continue to live responsibly even if you’ve thought up the next big thing.
Map out the possibilities
As a business owner, you should be aware of all the things which impose limits on your startup. The amount of time and money you are willing to invest in the startup should be planned, noted down and strictly followed. In case you find yourself overshooting your limits, reassess the situation, because something is wrong!
It is also highly important to plan out your strategy, for both failure and success. Decide at what point will you deem your startup a failure – it may save you a significant amount of resources in retrospect.
The human factor
It’s human innovation and skill that generates a startup idea, and you’ll need these qualities for the rest of the way as well. Schedule regular sessions solely for brainstorming, designing, and problem identification and analysis. Startups and mentorship have always been linked, so make sure your plan includes a mentor’s advice, especially on finance. If the accounts are not kept satisfactorily, consider hiring a bookkeeper or learning accounting software.
Have a cushion
Before engaging in any activity that entails risk, you need to have a plan, and for a successful startup, that plan is a big financial cushion. According to certified financial planner Eric Roberge, a cushion of at least two years of personal expenses is necessary before you begin working full time on your startup. The stress that results from the knowledge that you’re running on empty does no good for your startup!
Startups fail nine out of ten times, but mostly because owners lose sight of their goals and plan carelessly (or not at all), hoping that just one more loan will jumpstart their failing enterprise. It’s not the loan or the funding – it’s how you use them! For more information on how to get start up capital and small business start up loans, go through our website.