Money is always king.
After all, one of the biggest contributing factors to why people become entrepreneurs is to make money.
So with that said, why in the hell are many entrepreneurs in such a rush to spend it all carelessly?
Money is your second most valuable asset as an early startup, only behind time itself.
Start approaching both as the same — a finite resource.
When you’re starting a brand new company, consider the following money-draining holes that you should avoid early and/or prioritize later on as your company begins to grow.
1. Legal is great but not needed pre-company launch
Before we have the pitchforks come out here — let us be clear here, legal is good. Legal helps you sleep at night.
If you have an application, mobile or the web, you surely want terms of service, privacy policy, and other legalities in place to protect you.
If you have co-founders, an operating agreement, an equity agreement, having your company legally set up and registered, all are key.
However, let’s be real — if your product, your company, is still ten months away from launching, why are you dropping over $10,000.00 in legal costs this early?
You could be better using this money elsewhere.
One of the biggest money-drainers out there for young startups is jumping into legal too early.
Here is the worst thing about jumping the gun prematurely. Your product is still being modeled, crafted and fine-tuned. If you create terms of service before your product is done, and your product changes, what happens? Yes, you pay an attorney to edit the terms of service further. You’re throwing money away.
Patience is key for legal.
2. Why do you need so many monthly service subscriptions?
Adobe Creative Cloud. Google Apps. Buffer. Dropbox. iCloud. Freedom800. Evernote. InVision. Slack. Basecamp. Sidekick. Mixmax. Rent. Cell phone. Bill.com. MailChimp.
The list goes on and on.
Monthly subscriptions seem innocent at first. Only $10 a month here, $25 a month here, but, they add up, and quickly.
We have a lot of clients at Chop Dawg who end up spending over $1,000.00 a month just in monthly subscriptions. Here is a better way to look at it: that’s as much as $12,000.00 a year in monthly subscriptions.
Crazy, right?
When you’re a young startup, most of your subscriptions shouldn’t be a service that you pay for. The freemium versions most offer should suffice.
Don’t just jump the gun until you’re generating a significant amount of revenue to validate the expense.
3. Wasting a marketing budget
Sure, I’ll be happy to sponsor your event even though my product won’t be out for at least six more months.
Absolutely, I’ll buy 10,000 business cards even though I hate business cards myself.
Well, I know I hate receiving mail in 2016, but sending out a mailer sounds like a great idea.
I have no idea how to run Facebook Advertisements, but sure, let’s drop a few thousand dollars a month into ad spend and see what happens.
You see the common thread here?
Marketing is a huge asset when you have a formula to deliver real ROI.
However, a lot of young startups will throw money at a wall, somehow expecting it to stick. Spoiler alert — it doesn’t.
Be selective in your marketing efforts. We’re not proposing to not market yourself. That is foolish. What we are saying is start small, focus on ROI, and invest in what works. Stick to methods you would use yourself. Don’t try to be courageous or adventurous.
This is your money that you’re putting out there. Don’t lose track of just how precious and valuable that is.
4) Building more features in your product than needed for day one
There is a reason why the Lean Startup became a best-seller, and why the term Minimal Viable Product (MVP) has become so popular in the last ten years here in the startup land.
You don’t need to build your grand vision from day one. Build up to it, slowly.
Not only will you now have your product launch quicker, not only will you be able to validate your idea quicker, not only will you be able to generate revenue and traction quicker, but yes, you’re going to save money too.
A lot of entrepreneurs lose sight of the shores for what they truly need day one and drift out too far.
If they can afford to get to the other side of the ocean, they’ll soon realize, they never even needed to get that far. Just reaching an island would have been good enough.
Imagine how much more you could have scaled with the money you saved from not adding unnecessary features early on.
More marketing budget perhaps?
Stronger team to handle customer support?
More scalability resources such as better servers and infrastructure to avoid downtime?
You could have generated more revenue, quickly, with a fraction of the work. Instead, you spent your money prematurely.
Don’t make the same financial mistakes that most young startups make.
This isn’t to say you should be afraid to invest, contrary, you should be afraid to only invest in the wrong things, which yes, can very likely mean investing in the right things but at the wrong time.
Take time to truly calculate every dollar you spend, and be wise about always ensuring you have the right funds in place to continue growing. If you do that, you’ll always be in good shape.