As the founder and/or CEO of a brand new startup, you are going to get advice, hints, and tips from everyone you know. Over the past few years, we've met with people just like you, who have shared the advice they've received. Some of it has been great advice, but much of it has been rather... well, wrong. As more and more startups are crossing our path, and we talk to more and more new business owners, we've compiled some of the most common myths we've encountered.
I want to preface the rest of this blog by saying that there is no one size fits all solution for any of the issues you will face when starting your business. Each one of these "myths" that we are debunking are being considered in broad terms. Any one of these may work for some, but in general, they are not the right approach for the overall startup community. That said, let's jump right into it.
1. "I only need enough to get me through the first six months of startup"
This may work for some, but in our experience, it pays to plan for a longer period of time. A lot can happen in the first six months. Unforeseen holdups, more time to ramp up production than expected, or a longer than expected funding process happens more often than people think. Read More: Cash Flow 101: Tips for Management, Projection, and Long Term Improvement
2. "The company can be funded on revenue"
Rather than call this a myth, we'd like to tell you to make this your goal. If you can pull it off, we applaud you. But chances are, you can't count on revenue, at least not for some time. You should look into all of your funding options, whether you self-fund, do a friends and family round, look for venture capital or angel investors.
3. "I need a comprehensive business plan"
This is something that comes with a caveat. If you are raising money or borrowing from a bank, they will expect to see a business plan. But more importantly, they will expect to see numbers. The thing with a business plan is, as your business grows over the first year or so, your success will be affected by your ability to pivot. You may find that you have a greater growth opportunity if you make changes to how you viewed your business on day one. When I started my business, I didn't create a business plan. Instead, I set three goals for my first year and focused on those goals. My business developed naturally.
4. "I can offer equity if I can't offer competitive monetary compensation for talent"
This is not a myth; you can absolutely do this. But you shouldn't rely heavily on this tactic. You don't want to give away all of your company before it even gets off the ground. Think about what positions you need to fill and what impact they will have on your revenue stream.
Will you benefit more from a strong sales lead or would you be better off with a strong product person? In my experience, entrepreneurs are frequently one or the other, so determine which you are and make an investment in a strong candidate to manage the other end of the business. Research how much equity other companies are issuing to key hires to better gauge how you should allocate your equity.
5. "I know how I want this to end, so I should be thinking about my exit strategy"
No! Just NO! Of course there is a part of you fantasizing about the Scrooge McDuck sized vault full of gold you will be swimming in when you eventually sell your company, but going into business already planning for your exit is a recipe for disaster. My motto is "Build a great company, and the exit will take care of itself." If you focus on growing your company into a successful business, you will have buyers knocking on your door.There is more value to be found with an enthusiastic buyer than a motivated seller.
As I said at the beginning of this blog, you are going to be given plenty of advice as you start your business. Some of it will be obviously good and some of it will be obviously bad. For the things that aren't so obvious, reach out to other entrepreneurs or a trusted partner who can help you sort through it all.
If you want to learn more about making the right strategic decisions for your startup, take advantage of a G-Squared Consultation today.