There are a seemingly endless number of ways to spend money, and it’s impossible to be wise about all of them. But a few common costly mistakes can sink a bootstrapped business. Here are six pitfalls to look out for, along with expert advice on how to avoid them.
#1 The Wrong Team
Choosing the wrong team is the single costliest error entrepreneurs make, resulting in not only lost income and time but also depleted morale. Choosing who to hire and work with in a startup is like playing cricket in the schoolyard; you can pick your friends and play for them, but if you want to be good and continue to be on the ground, you have to carefully pick your team.
It’s crucial to choose people with varying skill sets. Much like a great sports team, they must also share some common values and the ability to trust each other in tough situations. That’s why past experience working with your co-founders and early employees in stressful times is much more important than being friends.
#2 Bad Pricing
Tobin Booth, CEO of Blue Oak Energy, paid dearly for a pricing mistake. It occurred in 2010 when the California-based company, which engineers and constructs solar photovoltaic power systems, took on a contract to install solar units for a retail chain with stores in eight states. “That was a level of complexity we had zero experience with, in a very competitive market,” he says. “What we didn’t understand across all these states were the tax consequences and how much variation there was in labor rates. Then there were delays because of weather and shipping”. The company, which also hadn’t planned for project delays that led to incurring storage fees.
#3 Waiting for Perfect When Good Will do
When you’ve got a killer idea, it’s natural to want to introduce it to the world in a fully formed state. But it doesn’t take a CPA to figure out that the longer you take to launch, the longer you go without money coming in. Many want to build an app and won’t let it go until it’s perfect, but then you take too long and spend too much. Specifically, this error will likely leave you with no “runway”—the cash you’ll need to sustain you as you’re trying to get your product off the ground once it’s ready, but before you have customers. You need to come up with the simplest, basic version of your product that gets the idea across and try to find someone you can sell it to. Find one or two clients, who are willing to do a pilot where you build, test and iterate it. Inevitably, your product will be different than what you expect, and then you build it. If you get a real, live client, you create a better product in a very cost effective way.
#4 Being Cheap about Marketing
People think, everyone else has to market their product or service, but I don’t because this is so good. The related myth is that you can rely on social media to build virality and attract customers for free. Social media is not free. To do it properly takes unbelievable amounts of time, and it’ll typically take six months to a year before you’ve got even slight momentum—it’s not fast.
In the end, the best way to avoid costly mistakes is obvious: Save and spend wisely. Keep spending really, really tight. Leverage everything you can and give yourself as long a runway as possible. You’re going to need it.
- Swarit Yadav
PGP 1st Year | IIM Raipur