All new businesses share one common element regardless of the type or size of the endeavor; funding. Acquiring the necessary capital to get the shelves stocked, the doors open, and enough sales to get the cash flowing, remains the most difficult aspect of start-ups and the number one reason small businesses and startups fail. Most new business ventures take 12 to 18 months to generate enough cash flow to become financially self-reliant. While most new businesses rely on the entrepreneurs’ ability to pony up personal cash and assets, outside sources for capital are usually required. Traditional lender, investor and credit outlets are a staple of enterprise funding, but technology has made it much easier and cheaper to start a new business.
Crowd funding, the online availability of capital for emerging businesses, has become the go to location for those looking to fast-track the launch of the business. Trends in the startup and early-stage investor ecosystem continue to grow and are on track to become a major source of new business funding. The source and availability of new capital is not the only important aspect of financial challenges facing a new venture. Managing expenditures and unnecessary spending often is the major reason behind early stage failures. Careful spending is important in any business. Music entrepreneur and guitar legend Zakk Wyldein says, “You have to pay attention, like with tours and expenses; you have to factor that all in. You want to play music for the rest of your life, you have to pay attention to all the things.”
Dedicating the bulk of spending for things that focus on attracting customers is the best capital spend to generate value and the next generation of funding; revenue. “I challenge you to achieve what you are doing with less capital,” says Mike Schroll, founder of Startup.SC. Often a successful launch results in a euphoric mentality for those inexperienced and unaware that the most challenging time comes after the excitement of the start wears off.
Like a horse race, every entrant enters the gates with enthusiasm and confidence of a winning run, only to be tempered by the competition and the potential, ever present stumbles encountered along the way. It’s a long race, spending the winnings before you cross the finish line will result in your horse falling back in the pack and ultimately being left out of the race.
A large percentage of companies are squandering the easy cash, utilizing it in bad faith and spending it like it’s their own. Easy money comes with increased responsibility and a need for additional layers of accountability to ensure that investor capital is not squandered.
“I’ve been in or around the emerging business market for nearly 20 years and I have witnessed the good, the bad, and the ugly as it relates to funding,” comments Julie Gareleck, CEO, Junction Creative Solutions (Junction). “I often see smart entrepreneurs with a solid business or technology waste money on salaries and expensive business trips. In the companies that we have consulted with, we have realized more success with those entrepreneurs who have boot-strapped the business and put their own money on the line. There is something to be said about using your own money. It’s more difficult but there is typically less wasteful spending. My advice to those start-ups who have been successfully raising money is to treat every penny as though it was your last. Spend the investment on monetizing the business first.”
The dark side of attracting investment is the reality that missed expectations can lead to unrest with investors. In some cases, investors can exercise their right to take ownership of your business or technology. “If you’ve committed to investors, you have to deliver. No excuses,” comments Gareleck. “Mistakes and missteps are a given in business. Be responsible and take accountability for every dollar. After all, it’s their money.”
While not every entrepreneur can boot-strap the business, entrepreneurs must educate themselves on how to properly manage the investment dollars in the beginning. It will serve as the benchmark for the future and viability of the business long-term.
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