As much as you want to think about your business as your passion, you have to remember that the reason your company exists is because it has one thing: money. The sooner you understand this, the better off you will be. Money is really important to a start up. It is a precious commodity and you need to treat it like one. You would be surprised at how many people don’t.
Here are five simple rules about money to help you have a successful start up.
1. Don’t invest your retirement fund.
You need money to live. Don’t invest your 401(k), remortgage your house or withdraw your children’s college fund to put money into your business.
The only way you will be successful in the short term is to make your business self-sustaining. That doesn’t mean that your company can’t ever have any debt, but don’t burden yourself with that sort of pressure until you know you have a product that’s going to have some real traction.
How do you know if your product will have traction? Well, there’s a lot of different data you can collect with market studies and interviews, etc. But the best way to tell if you have a successful product is if people buy it.
2. Keep your expenses down.
If you run out of money, your business will close. Don’t waste your money. Consider every expense carefully. Only spend money on necessities. If you can do something yourself, don’t pay someone else to do it.
Track your expenses carefully and constantly. This visibility into your cash flow will help instill good habits.
3. Be really, really picky.
Choose the people you hire carefully. A bad hire wastes your time and money. You can’t afford to not be picky about whom you hire.
Choose your partners carefully. Just like an employee, a partner can be good or bad. Don’t partner just to have a partner. Make sure that there will be value for both of you in the relationship.
When you sign a contract, make absolutely sure that the terms are as favorable as possible. Negotiate. Even if you think you can’t negotiate, try it anyway.
4. Advice is worth more than money.
First, you have to realize that it’s likely that nobody will invest in your company until you have built a good product, show a good track record of sales and prove that you can manage a company. Until then you basically represent a massive unproven risk to any potential lender.
In the rare event that someone decides they want to give you money, be prepared to turn it down if you don’t like the person who wants to give it to you. Only take money from an investor if they will give you advice too. In an early stage business, good advice is worth more than money.
5. Focus on sales
With all of the other things you need to do to keep your business running, don’t ever get distracted from the only thing that will keep you in business — selling your product. How much time do you spend on sales? How much time do you spend on other things? Just like you should track your cashflow, you should track where you spend your time. Review it and make adjustments regularly.
If you are a technologist, you may find yourself spending most of your time in your comfort zone–behind the computer. Don’t. Get out in front of your customers.
Have any other thoughts on how to protect your money? Let me know.
photo credit, nohodamon
