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Management Tips for Entrepreneurs: Avoid These Common Pitfalls

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At Invesdor, we've helped more than a hundred companies raise funding and screened more than 3,000. This has enabled us to see patterns in how companies at various growth stages operate and approach fundraising, and in those patterns, we see some recurring pitfalls. Below is our collection of tips (we've bolded the essentials) for business decision-makers in startup, early-stage, growth-stage, and IPOing companies.

 

Startup entrepreneurs

Even with legal, professional, or financial advice, starting a company is one of the toughest tasks professionals can face. The most valuable thing to consider at the outset, is how similar entrepreneurs have failed – and to learn from their lessons.

Cash flow management is the primary cause of startup failure; whether it’s an additional staff member (though this is costly in itself) or the correct accounting software, tracking every cent is essential. Operate thinly – ignore the amenities, premises, and costly trappings some startups elect, and streamline wherever possible; limiting expenses from the outset is key.

Starting a business demands you to alter the way you view your time – your time and money are intertwined.  Many startup entrepreneurs set out with the mentality that they can pay themselves dividends when their multimillion company emerges – be sure to set reasonable financial goals, not every company can or will be the next Uber.

Focussing on customer acquisition, and how this will be scaleable and profitable, is far more essential than pondering your ultimate financial goal.

 

Early-stage entrepreneurs

Early-stage entrepreneurs are familiar with the thrills of hitting the requisite beats on the path to success – whether it’s finding your ideal co-founder, or landing your first paying customer. Nonetheless, the failures of your predecessors are where lessons are most gainfully learned, and the only way of ensuring your winning streak can continue.

Take, for example, Fueled, a mobile development company who shared their tips to startup success with Entrepreneur. Their list is surprising – they clearly delineate some of the more difficult tactics they had to employ, such as firing fast, invoicing up-front to clients, and only charging flat fees for discrete deliverables, that ended up being essential to their continued success.

Indeed, this exchange of ideas that occurs within the entrepreneurial community is highly beneficial – Fortune Magazine said: “Often, when you share your moments of success with entrepreneurs, you’ll form beneficial relationships where you exchange ideas, and learn from each other’s successes and failures.” Take time to network and learn from mistakes others have made.

Again, the maxim “if you’re the smartest person in the room, you’re probably in the wrong room” can be expanded for early-stage companies, if you’re experiencing success all the time, and spending your time celebrating it, consider raising the bar of your expectations and goals.  After all, it’s not about celebrating you, but celebrating your customer – as the CEO of Five Guys said, "We figure our best salesman is our customer. Treat that person right, he'll walk out the door and sell for you.”

 

Growth entrepreneurs

Growth-hacking is one of the biggest buzzwords in the startup sphere, with more seeking to enact it than truly understand it.  But as Forbes says, “Growth hacking is the perfect fit for startups because it throws out the traditional marketing playbook and encourages pursuing users and growth through testable, trackable and scalable methods.”

For example, understanding product-market fit is a difficult but essential road for startups. Given that 9/10 startups fail, and 60% fail because of a market need, Forbes is right to say that “You will never be successful trying to growth hack a product or service that people don’t want.” Good products flounder in the absence of a demanding market.

Similarly, even when finding a customer base for your product, second-guess whether this is even the right one – centring your product and practices around the whims of a single consumer type can be more damaging than having no consumers at all, as you start to operate in a way that is not consistent with your vision. Instead, look to creative and unorthodox marketing opportunities that will allure the kind of consumer you desire.

Forbes similarly has great advice in this regard, advising to “Look for other startups to sponsor or partner with. As long as their audience is a good fit for you and vice versa, you can both benefit from cross-promotion.”

 

CFOs at IPO Stage 

The options for CFOs at IPO stage have never been so varied and diverse; we’ve witnessed the first IPOs take place via equity crowdfunding platforms, just as the role of the CFO has changed in recent years.

Yet, CFO for Trivago, the German company that is now listed on NASDAQ, Axal Hefer, had deceptively simple advice for CFOs on the cusp of, or considering the IPO process. Don’t, for example, prepare for an IPO for a year – this “means you’re working day and night for 365 days.” 

Similarly, ensuring that you’re educating the general public and journalists as accurately and as frequently as possible is essential. You don’t want the silent period after filing translated into a period of failure by the press. 

Indeed IPOs can be more about short-term goals than long-term vision, which is where many companies run into trouble, failing to sustain the IPO valuation. The Innovation Enterprise has excellent advice in this regard, stating that “CFOs must ensure that a period of high growth like an IPO are in line with a company’s overall strategic goals by guaranteeing that resources are properly planned, allocated, and monitored to optimize the success and impact of the company’s growth strategy, and build processes and infrastructure that support the firm as a newly listed public company.”

Many companies too prematurely onboard CFOs as a harbinger of future liquidity rather than as a reflection of the current books. TechCrunch acknowledged this in their IPO roundup, stating that “Hiring a CFO doesn’t make much sense for most startups until they achieve “meaningful revenue; annual revenues hit about $100 million or more.”

As with the above stages of growth, advancement is not about where your company aspires to be, but rather its present customer base, liquidity, and scaleability. These things alone determine progression, rather than any elusive notion of where you ought to be.

While the above may assist you as your company explores various methods of expansion, keep in mind to always seek independent financial, legal, and professional advice.

Interested in raising funding? Get in touch ➤

Tagged: Tips & Tricks

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Richard Andrée Wiltens

Written by Richard Andrée Wiltens

Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.