Starting a business is the new get rich quick scheme. Well, not exactly. If you turn on the business news or pick up the paper you will often see stories of how a group of friends had an idea, started their business in their parent’s garage, then within years it was worth millions or sold for billions. The latest being Snap Inc.’s IPO, which raised almost $2.5 billion for Snapchat’s parent company, but nearly $1 billion for the founders and early investors. We can also ask Kevin Systrom, who sold Instagram to Facebook for $1 billion, Jan Koum, who netted a cool $10 billion for his WhatsApp company, or Jessica Alba, whose business, Honest Company, is estimated to be worth $1.7 billion.
It is estimated that between 90-95% of all startups fail.
Despite many of these success stories, this is far from the norm. It is estimated that between 90-95% of all startups fail. Many reasons for this include not finding a market for their products, not hiring the right people, or not really being able to differentiate themselves from the competition and the list goes on. The number one reason for failure for many startups is not having enough capital. In fact, when we think about ways to increase the likelihood of success for startups, many experts suggest that a startup should stay lean. I like to call it the perfect financial date.
The Perfect Financial Date
In a traditional date, a lot of money is spent upfront during the “show off” period as two people get to know each other. Eventually, when two people feel they are a match and want to take their relationship to the next level, ironically this is when the spending tends to slow down as they discuss their future. This is a financial disaster because many times when it doesn’t work out the person spending the money upfront is left with nothing but lighter pockets. The perfect financial date is to get to know each other, spending the least amount of money possible upfront so that if the relationship last then collectively you have enough money to do all the fun things that couples should do. Treating your startup this way is the best option for success.
Stay lean by practicing the following three tactics:
1. Make sure visions align.
Before you spend an exuberant amount of money in your business, make sure that everyone in your company shares the same vision. People are what make companies successful. So, if you don’t have the right people in the right seats on the bus, then spending more money will hurt you.
People are what make companies successful.
2. Build brand awareness and value early on.
In a romantic relationship, most people wait until they get comfortable before they start showing off their significant other to friends and family. They want to assure that they are “the one” before introductions are made. This is a mistake because your friends and family may be able to point out things you need to see about your significant other that you won’t necessarily be able to see yourself. This is the same as when you are building your business. Make sure that you build brand awareness and value early on so that your customers can tell you what you are doing right or wrong. This will save you tons of money. Instead of spending on an idea that hasn’t been tested, spend as little as possible as you work out the kinks.
3. Take advantage of free dates.
Instead of spending money on expensive dates with someone you don’t know if you will be with long term, you should take advantage of free dates to assure you enjoy each other’s company. Do the same with your business. Social media is a great way to go on “free dates” with your company without spending a lot up front. But, don’t stop there—find other economical ways to get the word out, so you can stay as lean as possible.
In conclusion, decreasing your upfront investment in your business as much as you can while testing the viability of your idea is the best way to keep your startup lean. Once you have proved your concept and know that your business is a keeper, then it’s time to pull out the caviar and cook up the filet mignon!