Every startup needs an initial pool of cash to live off of before it reaches the point where its profit is enough to sustain it. Not all startups are lucky to survive long enough to see that day, though. In around 29% of cases, the business runs out of cash and has to shut down.
It has become common practice to keep a buffer fund that’s meant to provide a runway of at least one whole year of capital before running out. Even if your startup can afford such a luxury, it still doesn’t mean you can be entirely carefree with the spending. Too many startups go overboard with their spending on agency costs, development costs, ads, and show-off.
Such behavior leads to the business being compelled to fire employees and lose essential business resources. Eventually, the costs climb higher than the available resources, and the startup shuts down.
In the beginning stages of a startup, it’s crucial to utilize your finances smartly. There are several ways to maximize efficiency and cut corners in the early days of a startup. Here are a few ideas;
• Perhaps your business doesn’t ‘need’ an office of its very own just yet. Consider opting for co-working offices with shared space and resources. Yes, it may be a tad bit inconvenient, but less so than having to shut it all down because your startup ran out of money.
• Go easy on the marketing. Ads make promises to people to increase their expectations. But it’s better to under-promise and over-deliver, than to over promise and under deliver in the beginning. This helps with building a foundation of a loyal customer base, which can be enhanced with paid ads later on as you progress.
• Many startups look to scale too quickly and overestimate the benefits of hiring more and more, which isn’t ideal. Minimize hiring in your early days. Delegating work is great, but only when it increases efficiency, not the other way around.