Starting up is an adventure. Even if startups have become fashionable, they do remain actual companies.
With the same basic principles governing them.
Build, sale, make enough money to stay afloat and, hopefully, thrive.
Yet, statistics still tell that half of the newborn companies will not make it past a few years. Even the recent trend of over-funding tech startups will not really help as startups tend, more and more, to adopt a “nouveau riche” stance.
Nobody can deny the extreme competition over talent within the startup world leading to crazy packages to be offered. Also San Francisco and its housing prices make it near impossible to hire anybody without offering a premium just to allow them to live somewhere decent.
However, not all startups are in San Francisco and not all of them need to hire the one worldwide expert.
Does that mean that these other startups may be safe from the cash burning epidemic ? Not necessarily.
Before the spending spree, startups were already burning cash. Only in different ways.
Back to basics
Startups are, by default, young and lacking experience. That is basically why most founders need help and advice. A founder, backed by a mentor, usually builds a far more solid business.
Why is that ? Because, at the very least, a mentor may allow to avoid the panic decision-making.
Every company has deadlines. Every startup – or most at least – tend to have funding covering a defined lifespan and will, ultimately, need to make money or die. This creates a sense of urgency.
And out of urgency, panic.
Think and act
Founders, entrepreneurs, need to think before acting when it comes to steering their company. And not act without thinking.
The early stages of a startup are crucial and every decision made can create rotten foundations for the future.
From renting office space to hiring people and external consultants.
This post was actually triggered by a recent encounter with a company managed by a handful of people using outsourced skills. Definitely a good way to get skills onboard for a limited time and lower cost while still having the job done.
However, “job done” does not mean job done well.
Ask questions of “experts”
In the age of freelance, it sure is easy to put together a bunch of experts bringing dedicated skills to the table of a startup company while avoiding the humongous costs of having full time employees.
But whatever or whoever the “experts” are, startups need to put their name to the test.
A job done is still just a job done. Not a job done well. And as much as people want to love the lean startup approach and the MVP approach, not every product delivered will get a second chance.
An easy example being apps. People download, test and uninstall if it is bad or even just acceptable. And never come back.
This is valid for more trivial matters. In the case I encountered, I gave advice on the customer experience, the marketing and the use of social media. A quick but solid overview of what was good, wrong and where major improvements were needed. It basically took me 15 minutes to do a quick audit and put a summary together.
But this startup then let me know that these points definitely made sense as they had commissioned an analyst company to do an audit and they had had similar findings.
After having been provided this document, my new finding was that analysts had basically been paid a very fair amount of money for a half-assed audit, written over about 50 pages, and not providing any clear recommendation.
Seriously. I did provide more content and actionable recommendations, for free, in a standard note than an actual analyst in 50 pages and for an amount of money I would love to be paid.
But bullshit sells. Especially when people panic. Especially when they do not take time to think and define their positioning, strategy and expectations well.
The bottom line here is that out of panicking and missing advice, a company burns time and money on a useless resource.
Which leads to the potential next burning : hiring an agency to fix what is not working … Remind me again what, in this report, were the solutions ?
PR agencies alone are a risk for startups. Going the extra mile and entrusting the whole marketing and social media job to an external agency, without a dedicated resource to liaise and challenge them, is a do or die.
Needing a picture here ? Take your baby, walk out of the house and entrust your baby kid to one stranger you pick in the street. Then pray that was the right one … .
In the end, it is easy to burn cash in ways definitely less fancy than what Silicon Valley displays but startups beware.
Thinking and planning may save you from getting burnt – from a bad decision, leading to another, more expensive and engaging, to burning too much cash, screwing up the company’s image and finally not getting customers onboard.
Just sit down, relax and ask for advice.