The successful management of a budget can give a startup a big push forward and help it achieve unexpected results, however, finance and funds are one of the biggest challenges facing startups - they can make or break a project.
I believe that investment firms and startup incubators should dedicate lots of training and discussion opportunities on the matter, showcasing success and failure stories in previous projects, (especially as there is no one-size-fits-all rule that can be applied to all projects).
There are of course some broad lines that entrepreneurs should follow when planning their projects and when moving on to the implementation stage. I have talked with many entrepreneurs and owners of projects that received funding, and the main point that we kept coming back to was their running out of funds. Delving further into the details of the matter, I found that they had made many bad (financial) decisions that they could have avoided.
Here are some tips that should be taken into consideration, whether your project is big or small, and regardless of whether or not you have received funding. These will become with time a work style that can drive both your current, and future, projects towards success and long-term sustainability.
Hire slow, fire fast. Although this piece of advice is a golden rule in the world of startups, some still don’t give it much importance. As soon as some entrepreneurs get funding, they launch an extensive recruitment campaign getting into a race against time, hoping to achieve quick success. This is a tremendous mistake. Even if you get big amounts of funding, you should always follow several key rules when hiring a team. Within four years, I personally hired more than 100 people most of whom I fired. This brought me to a number of conclusions:
- Don’t hire a large number of employees all at once.
- Never start paying employees from day one. Always give them at least a two-week testing period to check their competence.
- Don’t sign any permanent contract with employees before you give them a three-month probation period.
- Hire people on a freelance basis to complete small specific tasks. Don’t keep employees that don’t have work.
- Don’t hire a new employee that you don’t need even if the project’s plan makes for it and the budget can afford it.
As for the type of employees, entrepreneurs have to consider the objectives and different stages of their project. There’s no need for instance to hire salespeople before the programming stage is over and the project sees the light. There’s also no need to keep a high number of programmers when the project reaches a stable phase.
Some entrepreneurs like to gain the loyalty and dedication of their employees by keeping them even after they’re no longer needed. I have done that in the past but eventually they all left me when they received a better job offer and salary in a bigger company. The bottom line is that your project puts you on the road to management, one where you have to be very realistic and committed in order to ensure the sustainability of your project and put it in a growth environment away from emotions.
Don’t rush into spending huge amounts of money to advertise your project unless you have a very clear and specific plan of how to do so - any mistake you do in planning for your advertising campaigns may cost you a lot. I always say that a witty well-planned ad can achieve a lot more than an excessive campaign that only gives you fame to a certain extent.
As an example, the mobile company One Plus One launched a successful campaign; or focus on the good quality of your product to bring in customers gradually. Always know that every cent you spend on advertising that doesn’t get you real results, or additional revenue, is a waste of money.
When your project reaches the revenue (not profit) generation stage, you need to run the funds wisely and skilfully to achieve profits.
Controling the capital well is a key to success. It is a topic in itself that could do with many more of its own articles but generally speaking, there are many rules that you should take into consideration, which can vary from one country to another.
As an example, in Egypt, as a result of the dollar exchange rate fluctuations against the Egyptian pound, and the existence of a parallel currency market, you have to be aware of the difficulties you will face - any mistakes will be expensive. Imposing certain conditions on advertisers, such as concluding advertising contracts in dollars, or in the most stable currency in the region you are operating, then making your payments in the collapsing currency.
You should also leave room between collecting your revenues and paying your debts. You can benefit from this time interval to buy and sell goods and make some quick profits on the margin, or spend a small proportion of your revenues on targeted ads that can increase your ad revenues before your debts are due.
As soon as they get funding for their startups some small entrepreneurs rush to get a distinctive workplace with large spaces and high rents in an attempt to give their project a higher status, get a sense of self accomplishment, or give their clients some kind of prestige. But this is expensive.
Such a rush to a fancy workplace might cause you to lose the much needed liquidity at the expense of your project’s growth. Now, I’m not saying here that you should sit in the street with your team, but in many Arab countries there are now startup incubators that offer coworking spaces, offices, internet connection, and other facilities. Look for an incubator and negotiate for a good offer.
I know many large companies and agencies that have changed their workplace address and moved to cheaper locations to save on annual spending. This is very common and does not affect the quality of your services or reputation in the market. Many clients don’t care how fancy your office is as much as they care about the quality of the services you are providing them.
These are only some of the things on which startups spend the most money, making them obstacles to generating profits. Not thinking these purchases through, or running them inappropriately (finance wise), might keep your project as only a dream.