#5 Things To Avoid Splurging on After You Receive Funding
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Funding is one of the key challenges faced by startups, especially after they have chalked out their operational plans. While a seed stage funding has become easier to secure than it was a decade ago, startups that are not monitored closely for their finances, sometimes end up splurging this money in avenues, that may not necessarily transcend to good economics.
Here are five key points to harp on while allocating your newly acquired funds to good use:
Plush Office Space
One of the first investments made by startups is on their office space. While this may be necessary to accommodate the growing workforce, often the property scouting is not done well. Given that most business models, barring those in the offline space, have a digital presence, the priority of getting an office space in a prime real estate does not make much sense.
With multitude of options of co-working space coming up, and cheaper office spaces available, entrepreneurs should not succumb to the market bubble to get a fancy office space and splurge more than required.
It’s tough to get senior executives with the required skill set to head the operational aspects of the business. But that does not amount to splurging on talent, many a times inexperienced ones that may not ultimately suit the role.
"A startup after receiving a funding of Rs 4 crores told me they hired a CTO for Rs 1 crore. What kind of a decision is that, " says Vikram Gupta of IvyCap Ventures, the country's largest home-grown VC fund. "This sort of uneconomical decisions is what leads to cash burn. I told them I would find them a better CTO at almost 1/4th the price and apt for their company. It’s a matter of searching thoroughly until you get the right fit,” he adds.
While talent is important in putting together an efficient team, weigh your options well and attach value to a person with relevant experience and skill set, rather than shiny companies on his/her profile.
Discounted Schemes for B2C models
No matter how much funds you have flowing in, unless the business model breaks even and makes money in the long run, it won’t survive. In the Indian startup context, an array of e-commerce and hyper local digital businesses have lambasted the market with their discounted schemes. Unless a vendor is ready to pay for that loss, money is lost.
"There is no infinite pool of funding," says Ben Mathias of Vertex Ventures. “Ultimately your business has to make money to stay afloat,” he adds.
Scaling and expansion are an integral stage in the life-cycle of any business. But it should be approached with caution, mainly after assessing of the targeted market for expansion is ready or not.
Suggesting an easy way to deal with expansion methods, Mathias says, “ Start with one market and see how the model works there. Make it run smoothly there before you plan to scale. If the model doesn’t catch up in the first market itself, the money spent on expansion is a waste.”
Unnecessary Outstation Travels
Business travel is unavoidable, especially for companies that are looking to expand to find the right partner. While some ravels like property inspections cannot be avoided, startups need to try and limit business travel for their executives, especially when the same conversations can be held over digitized means like Skype, Concalls, and more.