If you’re thinking about launching a business, you should do all you can to give yourself the best chance of success. To help with that, here are five insights many failed startup founders often wish they’d known before they got started.
1. You Need 6 Months to a Year of Cash Reserves
When just starting out in business, you probably won’t have a lot of sales coming in, but you will still need to pay your rent, utilities, marketing costs, other operating expenses to sustain your business. That’s why you need to start with enough cash reserves to cover those expenses until you begin to earn sufficient profits from your sales. When you write your business plan, create three sales projection scenarios: the worst, acceptable, and best cases — then average them to determine how many months of reserves you should have. Many experts recommend a minimum of six months of cash reserves, with an ideal reserve of one year.
2. You Should Test the Market Before You Launch
Ask entrepreneurs about their product or service, and they’ll likely tell you it’s going to be in great demand. After all, passion for their product is a common trait among startup founders. But in reality, until you test your product with actual consumers, you won’t know for sure whether there is enough market interest to support a business. You can test your business idea with focus groups, both online and locally, or by conducting a limited product release and asking for honest feedback from consumers.
3. Without Cash Flow, You Will Fail
It doesn’t matter how great your product is, if you don’t generate cash flow, your business will fail. It’s critical, especially in the startup phase, that you put most of your efforts into generating sales so you can get cash flowing. In addition to bringing in sales, keeping your operating expenses as low as possible during this vulnerable phase will also help.
4. You Don’t Have to Rely on Banks for Funding
It wasn’t that long ago that entrepreneurs were dependent on bank loans for startup funds, and if they couldn’t get a loan, their dream of opening a business had to be put on hold. Things are different today. Startup founders can look to angel investors, venture capitalists, new fundraising strategies like crowdfunding, and even alternative lenders for the startup capital they need. The important thing is to research your options, and be sure to negotiate the best deal you can.
5. There are Alternatives to Costly Hiring
As your business grows, you may soon begin thinking about bringing on employees to help with the load. But before you place that job posting, you should know that there are ways to reduce the expenses of hiring employees. Many business owners hire freelancers and independent contractors to handle various tasks. This can save you money in several ways. For instance, you won’t need to increase your office space because these people tend to work remotely. In addition, you won’t be responsible for paying benefits, health-care costs, vacation time, or sick leave. You will also save money because you won’t have to train them: If you contract with the right people, they should already be experts in their field.