Survival of the Fittest – 5 Keys to Growing a Startup
Startup Darwinism says that as new startups get funded, others go the way of the do-do bird. Here are five keys for growing a startup to make sure your new business survives.
We came across an interesting report which suggested that as more and more startups get funding, more will have to die. While we are not so sure that it’s a zero sum game, we have five tips for growing a startup to help you strengthen your new business.
A day seldom passes that business media sites don’t announce the launch of a new startup or the demise of others. Happily for entrepreneurs today, there are many private and public investors standing at the ready to provide funding for a wide variety of different types of promising new startups.
Lest you think that startup failure is something that only happens to other entrepreneurs, consider these words from Forbes contributor Neil Patel cofounder of some little startups you might have heard of called Crazy Egg, Hello Bar, and KISSmetrics.
In the article titled 90% Of Startups Fail: Here’s What You Need To Know About The 10%, Patel says, “Nine out of ten startups will fail. This is a hard and bleak truth, but one that you’d do well to meditate on. Entrepreneurs may even want to write their failure post-mortem before they launch their business.”
Bleak, indeed.
If startup funding were enough to ensure success, the failure rate would be much lower. So given adequate funding and – presumably – a business plan worth pursuing, why is it that so many startups fail?
The short answer? Burn.
Burn refers to the speed at which a startup exhausts its resources.
Most startups that fail do so because they burn through their resources faster than they replenish them through sales or additional capital put in by investors. Even fast-growing startups can suffer from burn, when high sales still do not translate into adequate cash flow.
The key to successfully growing a startup and avoiding the common reasons new businesses fail is slowing the burn. Here are five key areas to watch:
5 Keys for Growing a Startup in a Startup-Heavy World
1. Stay focused.
Before a startup actually starts up, entrepreneurs are burning the midnight oil. Working with intensity and single-minded focus, they are building the business model, writing the marketing plan and selling their idea to investors. Once the startup actually launches, and there are a thousand different directions the startup could grow, it’s easy to lose focus and try to move in too many directions at once. Stay focused; work the business plan you sold to investors.
You might also like: 5 Ways to Know Your Marketing Plan is Brave Enough
2. Plan for contingencies.
The road to success when growing a startup is rarely a straight line or a smooth road. Your business plan should have contingencies and triggers built in that prompt you to shore up areas that are slipping, reduce expenses, expand marketing – whatever the best course correction for the situation. Without contingency plans based on thinking through possible scenarios, when trouble strikes you might not have enough time to come up with a solution on the fly.
3. Milk your cash cow.
What is a cash cow? The term cash cow refers to a business, investment, or product that provides a steady income or profit.
Most businesses, and even most startups, don’t come out of the gate offering just one product or service. Before you open your doors or launch your ecommerce site, you should have a good idea of which products or services are likely to be your cash cows, your most popular entry points for customers, and your most profit-generating offers. These are the products and services that you should spend most of your time and resources in promoting during the startup phase to be sure that you get your business off the ground. Save pet projects and harder-to-sell ideas for later on in the game.
4. Expedite cash flow.
Startups in the B2B (business-to-business sellers) space might want to offer extended terms to get new clients on board, but that means a longer wait when it comes to incoming cash flow. Regardless of payment terms, customers may feel they hold all the cards and take their time paying on invoices. Projects might take longer to complete than anticipated which will make invoices slower to go out and cash slower to come in. Expediting cash flow is key. Invoice factoring is a popular form of business financing in this scenario because it expedites cash flow and a financing tool that B2B startups and consultants can take advantage of right out of the gate.
For retail startups (or any startup that requires payment at the time of service or product delivery), business loans, investors, business startup grants, and other business financing tools could help make it possible for startups to access working capital before or within just a few months of the business’ launch. An infusion of working capital in the beginning could be a helpful tool in bridging the gap when the “burn” threatens to deplete cash flow too quickly.
5. Don’t go it alone.
Many entrepreneurs are independent by nature. They have had dreams and ideas that they had to pursue on their own, they’ve had to write their own plans, build their own websites, design their own business cards and clean their own bathrooms.
They are used to going it alone.
Before you launch your startup, get a mentor on board who has business (and preferably startup) experience who can give you good advice and help you shorten the learning curve when it comes to business tasks like bookkeeping and accounting, taxes, marketing, human resources and more. The less time you have to spend on administrative tasks and busy work, the more you have to focus on activities that will grow your startup more quickly.
