We’ve talked before on the blog about the start up period in business and what you can expect. But I want to revisit the topic today and hone in on four major issues I see start ups deal with all the time, so you know what you should be specifically working to avoid as you begin your new business journey.
In fact, the struggles we’ll be going over today are often direct contributors to the obnoxiously high failure rate of start up businesses (remember, 70% of start ups fail between years two and five). Knowing what to avoid early on is key in navigating these problems and preventing them from infringing on the success of your business. This is critical knowledge, so grab your notepad and a drink and let’s dive in.
As you might have already expected, the #1 silent start up killer comes down to money. So many start ups fail for one or more of the following reasons:
- They can’t bring in money
- They spend money on the wrong things
- They manage their money poorly
Sometimes, ALL of the above comes into play. While it’s impossible to predict how these issues can affect your specific start up without knowing the intricacies of your cash flow and expenses, I can point you in the direction of a few tools you may find helpful when it comes to better managing the financial side of your business.
Determining your operating income formula will calculate your start up’s profitability, which is a major indicator of success or future failure.
Your burn rate will show you how fast you spend money before you reach profitability. A correctly calculated burn rate can be responsible for future success.
Debt-to-equity ratio shows how exactly your capital has been raised. This number is important for potential investors as it reveals how financially stable or risky your business might be.
Working capital calculates how much money you have left to pay off short-term debts. This indicates the current financial health of your business.
- Your cash flow tells you how much money you have coming in and out of your business. It shows exactly where cash is coming from and how it’s being spent.
You can check out this blog post for more information on how to manage your cash flow at start up and make smart financial decisions during this critical period.
The wants and needs of your customers should always be at the core of the products you develop. This includes knowing whether or not a product is a hit, and if it isn’t, how you can improve upon it to make it something your audience really loves.
Where product management issues come into play has to do with a term called
“feature creep.” Feature creep is the ongoing, excessive expansion of a product or the continual addition of new features. While improvement is a good thing, non-stop improvement can be a drain on resources and eventually become unhealthy.
For example, take the social media app Instagram. As business owners, Instagram is an important part of our social media strategy. Many of us who use the app as a marketing tool have spent years refining our strategy and getting to know the ins and outs of the platform. As a result, I can confidently say that a LOT of business owners love Instagram. Or at least, they did — until Instagram started rolling out a whole host of new features that users of the app didn’t want or need, under the guise of ‘improved user experience.’ While Instagram is far from a start up company, the amount of negative feedback in response to the frequent updates and changes to the app is a perfect example of how “feature creep” can be a big waste of time and resources. Now, Instagram has poured unnecessary money and time into adding these new features that a very small percentage of their user base likes.
You can have the best product in the world, but if nobody knows about it, your sales are going to suffer. Marketing is the heartbeat of your business: it drives new customers to your store or website, increases the visibility of your brand, and helps establish your business as reputable and credible. Where many start up owners go wrong in this area is neglecting their marketing entirely or assuming they can DIY it when what they really need is a dedicated marketing expert on their team. You don’t need to pour thousands of dollars into paid advertising to build a successful business (although it certainly doesn’t hurt to invest in advertising), but if you want to go the organic route, having somebody on your team who knows how to navigate the ins and outs of organic content and social media marketing is a must.
The final struggle I want to mention is growth management. When things are going well for your start up and growth is happening rapidly, it’s easy to get caught up in the excitement and neglect putting actual structures in place that will support such quick growth and expansion for your business. Too much growth is what we call “a good problem to have”, but it can quickly turn into a bad problem (and lead to missed sales and expansion opportunities) if you aren’t equipped to properly handle it.
Like I mentioned before, the start up phase of business is a hot topic on my blog because I know that many of you reading this are currently going through it. As a business consultant, it’s my job to help my clients build insanely impactful and profitable companies from the ground up — which often means putting our heads together at the very beginning and creating a solid plan that will allow them to avoid the struggles I just went over in this blog post.
If you crave this level of support for your new business, you have options! I’m currently taking on new clients for 90 minute strategy sessions, and the waitlist for business consulting is also open. Check out the Services page on my website to find the offer that’s right for you!