All businesses have limited resources. Start-ups have even more limited resources than established businesses. The survival of a business beyond its start-up phase depends heavily on the wise allocation of resources. There are two things that entrepreneurs need to be careful to avoid. One is spending too much money on things that have limited return. Entrepreneurs who run out of money too quickly will be too busy raising money to spend enough time working on making their business successful. Another is spending too little on items that yield a greater return for the business. Here are some thoughts about how to be a careful entrepreneur:
SAVE FOR A RAINY DAY
One general rule is that businesses will typically need more money than initially planned for. This means that any opportunity to save money must be taken. Actively look for ways to save because a lot of businesses fail due to running out of capital before they have gained traction. It is important to anticipate the possibility that the business may need more money than you had budgeted for. Find one or two things you can do without. Or for a little cheaper. Some entrepreneurs save money by trading services with another entrepreneur/freelancer.
LEARN FROM OTHERS
Experience is an excellent teacher. She is also very expensive. Find ways of learning from other people’s experiences. Talk to other entrepreneurs. Read their stories. Find a mentor. Spend time networking with business people. They will let you know about their successes and failures. Listening is good. Listening and asking questions is even better. Most people have no problem answering questions – as long as you are not asking for their closely guarded business secrets.
There are all kinds of businesses out there. Your business plan might look very different from that of someone who is in a different industry. That said, some things are universally important. If something will help you get your idea to the market then it is probably a good investment. Even the best idea is worthless if nobody knows about it. Investors are more likely to approve of you spending money putting your idea out there where it can be bought.
The second priority is to increase the number of customers as fast as possible. Any investment that will reasonably increase the number of paying customers you have will likely get the nod from investors. Carefully think about the cost of customer acquisition.
It may be tempting to spend more and more money building capacity and setting up infrastructure but having customers is more important because the business will not survive without customers. Avoid spending a lot of time and money perfecting a product that may not take off. Instead launch first and use customer feedback to improve your product on-the-go. Even established companies like Facebook are constantly improving.
Paying the founder is not important at the beginning. Give the business time to pick up before thinking about paying the founder. Sweat equity is very important to investors. The more of your own time and money you are willing to commit to the business, the more likely you will impress investors. One of the best ways to save money is to have a partner whose skills complement yours. Hire people because they either have skills that you do not have or because they can save you valuable time. It is even better when the personnel you hire will help you acquire and maintain customers. Sometimes it may be worth it to spend a little more money on more experienced and proven consultants. Other times it makes more sense to hire a rookie. If you are experienced and knowledgeable in your area of business, you can get away with hiring an intern and coaching them.
LEVERAGE YOUR NETWORKS
Entrepreneurs who start their businesses expecting friends and family to buy from them may end up disappointed and resentful. As Chinese billionaire Jack Ma famously said, friends and relatives are often the last people to get on board. A better way to use friends and relatives is for networking purposes. They can give you access to their networks both online and offline. This is very important because entrepreneurs need to network like crazy during the early days.
SWAG SHOULD NOT COST MONEY
Never spend money on swanky business cards when there are cheaper options available. Office space should be practical rather than prestigious. For e-commerce, buy a simple e-commerce system first and improve on it as you go along. The worst thing you can do is spend tons of money building something only to find out that it is not what you really want. Your own experience will guide you. Your customer’s experiences will also guide you.