There are too many challenges while building a startup, and how we react them leads us failure or success. Last time we discussed lack of focus, in this post, we talk about the second huge mistake – financial instability’s impact on startups.
Money is energy that forces system’s wheels to turn, push companies to grow, more sales, more revenue, more satisfaction, more and more…💸
Congratulations! As this blog follows the brevity principle(quality of being brief), you are at the second level!😊
If you are building a startup in the early stages, you will definitely need funding. The logic is simple. You need a seed to grow a plant that will turn into a tree, and finally, if things go well with scaling, that may become a forest. Maybe seed is the innovative product, your skillset, or team, but there is also soil needed. So where is the money in that story?🤔
Well, you can buy seed if you do not have enough skillset, product, or team. If the soil is not good, you need fertilizer. If the environment is not fruitful, maybe artificial lights are needed. Simply, you need to invest something to reap the benefits later on.
Raising money is extra challenging if no one knows you as an entrepreneur. Imagine you are a young, ambitious student and approach to an investor on pitch day who does not know you personally. You ask for a large amount of money but mention, “I may bring you multiplied times more of it, but I am not sure when and how. But we have a great team. All of them are superb hardworking students. We do not have any product or customer yet. However, I believe we will build a unicorn!”
Then what happens? A wealthy, generous, and risk lover investor praise you with a bag of money! Happy end! Poor kid, this will not happen! Someone should tell it. In real life, the story goes in this direction. After your speech, if the investor is patient enough to listen till the end, asks:
– Have you ever seen such an amount of money together in your life?
You feel something stuck in your throat.😰 You can’t talk or, in a sad situation, just mumble under your lips. You sweat, feel ashamed, and want to disappear.🫤 The harsh truth hurts. Yeah, I was that kid. Even though the story is exaggerated, at least after several times hitting the ground, I now feel a bit more empathy with investors and know them better.
Knowing investors’ mindsets gives you an understanding that they naturally care about their money. It is not growing on trees. Investors are not charity funds. They want to get their money back in 10x, 50x, 100x…
Wow, you are at the third level. Let’s play a game!😉 I bet you will read till the end.🌠 The show must go on!🤩
There is a widely held misconception that the only way to secure funds for your startup is through investors. However, there are many other options available. In this section, let’s delve into the mistakes I personally made in regard to funding my startups:
1. Wasting money🗑️ – If you are a team leader, you tend to be extra-generous, organizing team gatherings, spending money on lunches, non-necessary SAAS service purchases and etc., negatively affecting to startup balance. Those activities are not useless if you have enough money in your pocket. You should always avoid unnecessary costs.
2. Not bookkeeping🧾– One of the main reasons early-stage startups waste their money is not calculating their costs and income(if any). You do not need to have an accountant for the initial terms, whereas the business person in the team can do. It is extremely beneficial to know basic expenses and revenue. After having this simple balance sheet it is easier to reduce costs.
3. With no real value approaching investors🤥 – Keep in mind: You are not a scam. Even if you do not have a product, you need something to demonstrate to them there is value in your product. Having a proof of concept that shows the demand for your product, it’s a step in the right direction. Having a product, early adopters, and customers can significantly increase your chances of attracting investment. Remember, it’s about presenting a viable opportunity for growth and profit to investors.
4. Only money-motivated team🤑 – If you are less experienced, it is difficult to find qualified team members too. We will discuss this in detail later(Wrong team member choices post). In my first startup, there were too many arguments and discussions on money, and it damaged the overall work environment and efficiency. So, before taking members, define their needs and motivations clearly. Also, you should meet the agreed expectations.
5. Neglecting fundraising🫤 – Considering going early to investors is wrong, not thinking about it is a mistake too. Some founders believe bootstrapping or self-funding is effective. While it allows entrepreneurs to maintain control over their company and avoid giving up equity, it can also limit the number of resources available for growth and development. If a startup relies too heavily on bootstrapping for too long, it can lead to several problems that may contribute to its failure, like running out of money.
6. Not approaching FFF(friends, family, fools)👨👩👧👦 – Firstly, friends and family clear here. Fools are people who just started investing. In other words, inexperienced investors. The main point here is keeping in mind you are serious about your startup and not risk your close circle of people.
7. Not checking grants🪙 – Grants are good sources for getting money on free equity. You just need to comply with the regulations and follow the predefined agreements.
Important⚠️
Do not risk your life. Some people put their houses and cars collateral, then invest their whole money into their dream startup. Getting loans from banks is especially dangerous during the initial phases, considering you do not have stable income source and future of your project is unknown.
Finally, in today’s post, we discussed negative impacts of financial instability. I took lesson for myself if you can not cover your basic needs, do not build a startup. Firstly, attempt to solve that problem. Have savings, at least in the level of survival, then when you feel ready, jump into the startup ocean.
If you have any comments, feel free to share!
I wish you successful startup journey and financial freedom!🤗
Congratulations! You nailed it! I hope you find it useful. Have a pleasant day🌻
