Every founder of a new startup is bound to face countless challenges which would probably range from coming up with a business plan, building a team to even acquiring customers. However, there is one hurdle which stands out and has a bigger impact than other challenges, and that is raising money.
The process of raising funds is surely an ordeal but as you receive an influx of capital for your startup, it is time for the world to know that you are entering the big game. It is when you would have real funds to move your business forward after having spent months or probably even years of funding with personal savings, or loans from family and friends.
However, it so happens that the seed funding which is intended for laying the groundwork for product development and to fulfill customer validation, more often than not, gets neglected. These are the mistakes which would certainly put the next round of funding at risk and would most likely lead to the end of the business. With some research and experience of my own, this is a list of 4 critical things that every entrepreneur must focus on during their first round of funding.
Be Smart about Hiring People
One of the important things to go after having received the funding is to get the right people on board, who will be responsible for shaping the company and help it grow. Hiring good talent is essential for the business but at the same time is difficult as well. To hire people, you’d need to spend a significant amount of your time in the hiring process which any founder would prefer utilizing for doing things that have an immediate need. It’s a catch 22 situation where if you build up your team, you would already be walking on the road to failure and if you do decide to hire, then you need to sacrifice your time from some crucial activities to get new people on board.
While you maintain the balance and start the hiring process, don’t over hire people. A good advice here is to wait at least 30 days before you bring in your first new member. This is because growing your business does not translate into expanding your team, and filling up future positions with people that the business probably won’t need. Payroll will take out a huge chunk of your funding so make wise decisions when you hire. Nevertheless, one person should definitely be hired for the business and that is an accountant. You sure might be good with numbers but you wouldn’t want to spend time in crunching numbers while sitting behind a desk.
A professional here would be of great help to help you track the funds, take care of tax deductions and maintain your books, thus giving you ample of time to focus on other aspects of the business. Besides, you don’t even need to hire them full-time but only for the job that is needed to be done.
Don’t Run out of Money
An influx of sudden cash is sure to give you a rush and can often result in wasting some of that investment. Securing a round of funding sure deserves popping up that champagne but with that, you also need to form a strong fund management plan. Don’t end up in buying things you won’t need, and try to stick to your budgeting schedules as you previously did. Since you don’t want to drain funds quickly, it should be the highest priority job for you and every entrepreneur to not run out of money. You might be seeing several examples of startups which are running in the red for years, but that does not necessarily mean they are strapped.
One advice to stay running is to put a venture debt line in place, but don’t make a plan to use it. It would cost you some money but will also give you some peace of mind to function at your best. It is a good practice if you can understand your business and spending without the debt.
As a founder, you should be concerned about the cash on hand all the time, because employees won’t stay if you can’t pay them, even if they like you. It is always easy to include the projected revenue in your cash management plan, but you never know whether your business will ever see that day. So, try and don’t depend on it.
Budgeting Marketing Expenses
It is always said that an entrepreneur should know how to sell, which is true because if you are not able to sell then your business has no identity. Even one of the greatest entrepreneurs and one of the richest men, Bill Gates has acknowledged the importance of marketing. It is important to promote your product so as to make it visible to your target market. You need to establish good PR and budget for it as well because you want everyone to be familiar with who you are and what you do, irrespective of whether you are ready to enter the market or not. This will help you to establish your brand and also make an impact if you would need to reach out to venture capitalists for additional funding.
Let your Customers Decide
Always remember that your business is to provide for your customers and hence it would be a disaster if you forego customer validation. While you wouldn’t want to present an unfinished product which provides no particular benefit to your customer, it would equally be a bad choice to over-build your product which never makes it to the market. No entrepreneur would want to waste their time and reputation, two of their important assets, on pursuing wrong ideas, because that would simply take you back to square one.
Take a step back if needed to get customer validation done before you start your production on a larger scale. If you do not weigh in your customer’s opinions there is a high probability that you would need to make changes in product development in future. Why would you want to build something that would further require significant modifications?
Try and identify your prospective customers who can be consulted regularly throughout the life of the business. This will happen over several engagements and conversations that will produce the right requirements for building a product requirements document. No matter if you are in early stages of developing you very first product or getting into gear for launching an IPO, get everything tested against your customers. Try not to lose focus during the intense times of business and remember to always put the customer first.
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