Five Mistakes That can Leave Your Startup UnFunded
admin November 18th, 2008
THe landscape is littered with would-be business owners whove tripped up in their search for startup funding. Every day we talk to would be entrepreneurs with great ideas just stuck in the mud. Most have no idea where to get the money they need to launch their businesses. Even those that know who to ask get turned down when they do ask. Even those that get a “YES” and secure startup funding and financing, find that the money comes with deadly strings attached. A bad capital raise up can leave a new business owner broke, in debt, and possibly even out on the street.
Startups are risky. For the entrepreneur and for the investory. Generally, the new entrepreneur lacks business experience, collateral and a firm understanding of just how hard it is to get a business launched. The risks are just part of the deal. Nobody wants to lose money. Not your bank, not your friends, not your family and certainly not angel or venture investors. Nobody will put their money at risk without some likelihood of getting a return on their money.
But their are lots of businesses out there, and they all started somewhere. So clearly its possible, and if there weren’t risks involved, there wouldn’t be big rewards either. The biggest obstacle to getting your startup funded or financed is not knowing how to get it done. Here are five major obstacles to getting your startup funded and off the ground.
1. Not Asking for Enough Money, and Not Managing Your Cash Flow Properly
Many new business owners burn right through their seed money and never
manage to get to a cash flow positive stage. It is easy to be an
optimist (you wouldnt’ be starting your own business if you weren’t
positive about your ideas). But an optimist is in danger of
overestimating his sales, or being too aggressive in predicting how
quickly your clients will pay you. Underestimate your returns or
overestimate your sales and you can find yourself on a quick road to
failure. If you can’t manage your expense/income ratios or if you
don’t have a handle on your forecasts, you can chase your investors away
and find yourself stuck in the mud and out of business. Make sure you
accurately, and pessimistically estimate your real cash needs and get
enough funding to get you running.
2. Focusing on the idea and not the team
Lots of people have great ideas. Few can get them from idea to business, and almost nobody can get their without help. Investors and lenders want to see that you and your team have the implementation skills and knowledge needed to get your idea to market. Investors are often more interested in the team than the idea itself. An idea can be adjusted if the team has the perseverence, insight, skills, contacts and other resources to get the job done.
3. Poorly thought out business plans
Yes the team is critical, but a great team with no plan, no product, no market won’t hold together and won’t accomplish much. Its easy to conceive of a great idea without working through the details of how to actually get from here to there. Its true that if you can sell a two dollar gizmo to even 10% of the people in China that you are a wealthy man. But if it costs you three dollars to identify, sell to and deliver to those billion people then the product, and the idea are worthless. A startup will only get funded if it can show that there is a solid plan to get from here to there.
4. Not putting it in writing
Hey we’re all friends, lets just get this thing off the ground. Who needs contracts? You do. The most important thing a contract gets you is CLARITY. A contract, even if only in the form of a deal memo, lets you and all of your team lay out what you expect. Who does what, who gets what, who contributes what. If you can’t write it down, it isn’t real. Better to find out that your expectations are incompatible before you are months in and waist deep. Your potential funders all want clarity as well. How do they fit, how do they get paid. What kind of say do they have. Get it down on paper early, while it isn’t a struggle.
5. Not knowing how to ask
In this market, money is looking for opportunities to grow. There are plenty of sources of startup funding and financing, but you need to know how to ask. Consider engaging a professional like Financing.Org as a source for startup funding and financing. They can guide you through the process, make sure you present yourself properly and maximize both the quality and the quantity of the funding you secure.