Burning Cash: The biggest Problem of Startups & How to Solve it

  • Some of the biggest, most famous startups are known — or even notorious — for spending venture capital infusions lavishly on offices, employees, and equipment.

  • Generally, those startups fall into one of two categories: Fast-burning failures, or companies with a known quality product that use some of the cash their massive funding rounds to attract employees with high-end amenities.

In truth, these types of stories cover major outliers on two opposite ends of the spectrum. Startups mainly exist somewhere in the middle part of that spectrum, with extremely varied amounts of initial funding or even none at all outside of what the founders can personally pay for or borrow. The strategies so closely associated with the word “startup,” mostly amounting to hemorrhaging cash until the product takes off or at least does well enough for the company to be acquired, are not a sustainable model for most new businesses.

For most startups, huge spending isn’t an option. Especially at the beginning. The true nature of most successful startups is a lean start, with funding gradually increasing until — in the best case scenario — their product proves itself in the market and receives a big boost from investors.

The Lean Startup Methodology

The basics of the lean startup methodology are:

  • Build the minimal functional example of your product. Work with your engineers to create the leanest example of your product and get it in front of customers as soon as possible to start gathering usage data. There is immense value in getting your product out of the imagination phase and in front of customers.
  • Continuously deploy new versions of your product. Instead of slowly building the full suite of dream features for your product, add new fixes and features as your customers need them. This keeps every man hour focused on the most efficient work at all times. This also leverages the phenomenon of customer needs often being out of sync with engineers’ ideas. Each new feature implemented considers customer feedback from the previous version, instead of engineers and designers dreaming up their own solutions to problems customers might not even have.
  • Make decisions based on actionable metrics, rather than vanity metrics. In this case, actionable means a circumstance with a high chance of bringing in new revenue. A vanity metric, in contrast, is data that sounds nice, like targeting anything that nets new customers, but the best ways to do so sometimes cost more money overall than each individual customer brings in. Prove you can make money before spending too much at once!

The startup planning stances outlined above are even helpful for new businesses with heavy initial funding. Proving you know how to make money efficiently leads to a broader cross-section of investors willing to take a risk on your startup. And if the final goal is to sell the company off to a larger entity, you increase your chances of being well-compensated if the product is operating at a profit or at least losing very little compared to similar potential investments.

These three basics are the tenets of running a lean startup, and will point entrepreneurs in the right direction towards building an efficient, profitable product that proves to potential investors that your startup is worth their time and money.

Do you want to gain more tools to ensure your startup runs in the most lucrative and efficient fashion possible? That’s where W3 Business Minds come in. We specialize in helping startups and new businesses hit the ground running with the absolute best strategy possible, by identifying inefficiencies and plugging in new, data-driven ideas with proven success.

Whether you’re in the planning stages or you have a successful, established business that you know could be doing better, contact us today for a consultation.

3 Steps to Website Success

You could go crazy trying to keep up with the “new and the now” but you don’t have to. Setting out on the path to success with your website is as easy as understanding the 3 Steps.

Download free e-book for web success

Stay Connected!

Get new blogs delivered straight to your inbox! 
Protected by Copyscape

Web Business Success Podcast

Fill in the form to receive new episodes direct in your inbox
Subscribe New Episodes

Stay Connected!

Get new blogs delivered straight to your inbox!