I recently came across an article talking about how startups should hit the panic button when they only have 6 months of overhead in the bank. This premise stunned me, especially since it came from someone who invests in startups.
What world are they living in?
Having built multiple companies and invested in several more, the idea that any startup should freak out with only six months of overhead left in the bank is just absurd. Most established businesses don’t have that much.
So let’s discuss the harsh realities of launching a startup and how to overcome them.
Rushing Your Dream
Before diving into this, let me first state that you should never hold back your drive to launch a company. But prior to making the giant leap into the unknown, make sure you have looked for as many pitfalls as possible, and been brutally honest with yourself about how much money it will take to stay in business and keep the lights on at home.
In the early stages of any venture your family and friends will be on your side. But the second you start needing to borrow money, can’t cover your rent, or begin worrying about putting food on the table, most of them will tell you to stop. If you quit your job they will tell you to go back to the 9-5 world. The encouragement and belief in your dream will suddenly dry up.
If you have a good job and this is something you can start to build on the side, then don’t just quit. Keep your personal expenses covered until your new venture can. Then make the full jump. It may not be as cool, but it can greatly increase your chances of success and save personal relationships that truly matter.
Prepare For Cash Flow Heart Attacks
Now let’s assume that you’ve gotten the company going and you are growing. Generally, growth requires an increase in overhead. New employees, office space, resources etc.
While you may be getting new customers and growing your accounts receivable by leaps and bounds, reality is you will lose clients, have ones that don’t pay you, an employee that quits at a bad time, or have an unexpected expense.
One day everything looks fantastic. The next you’re having a heart attack because that big check you expected hasn’t come in…and it’s payday tomorrow.
To be honest, there really isn’t a way to avoid these kind of obstacles. All you can do is prepare for them mentally, and make sure your gambles on growth and new expenses are well thought out. Then get ready to rise to the occasion at the eleventh hour.
Getting Investors Is Hard
In spite of the idealistic thought that you will be able to raise capital to get off the ground, cover your business and personal expenses, hire a great team; the reality of this happening is very unlikely.
Not that your idea isn’t a great one. It’s just hard to convince investors to back you. What if your idea is only worth $5 million if successful and you need $500k to get going? If the opportunity to make a 2.5 million ROI (5x investment) isn’t reasonable, many are out by default. If they even take the time to let you pitch.
Let’s be real, many investors lost that much at the craps table in Vegas last week, and don’t want to wait 5-7 years for potential return.
My advice, do everything in your power to make it possible to achieve success without an investor. Even if that wouldn’t be as big or quick as you would like. This approach will give you sound direction in your planning and give you a leg up with potential investors. A basic rule of sales is creating “fear of loss”. When you’re presenting, if it’s reasonable that you don’t NEED them but would enable faster return, interest will be piqued.
No Pain. No Gain.
The harsh reality is that becoming successful is never easy. We often look at all the success stories and forget about failures. This causes so many entrepreneurs to put on blinders and refuse to account for these realities.
In my opinion, it’s much better to accept that it will be tough. Put heavy thought into your plan and get ready for the rollercoaster that is entrepreneurship. There will be pain and heartache, but if you can overcome, it will be worth it when you achieve control of your life and enjoy the freedom it brings to be the person on top.
I hope this article provides both snap back to reality thoughts and encouragement. Would love to hear your thoughts in the comments section and don’t hesitate to reach out to me personally!