photo credit: alice_c
The concept of lean startups is gaining prominence in today’s economic scenario. The term lean startup stems from the term ‘lean thinking’ which means spending money wisely by identifying differences between value-added activities and waste.
Many startup owners commit the blunder of spending extravagantly as soon as they receive some funding. An advice here; even if a startup gets all money in the world, it won’t help unless you have a product or revenue model.
Funding shouldn’t be mismanaged; there is an ‘implied contract’ of getting the company to an agreed level in the hope of increasing the value of the business. The stakeholders in an early venture should also benefit for their contribution.
So, waste less on luxury items and develop a practical approach for creating and managing a startup that excels in low-cost experimentation, rapid iteration, and true customer insight.For a detailed insight, visit:
http://www.readwriteweb.com/readwritestart/2010/01/when-your-funding-is-your-wors.php
"In early-stage companies, you will regret such spending when you hit the bumps in the road where you wish you had that cash. Inevitably, you will hit such bumps. Plan accordingly."
Make sure you have a revenue model since the beginning and remember – ‘money should only be spent if it provides return’.
Techcrunch has an excellent guest post by Venture Capitalist Raj Kapoor of the Mayfield Fund who advises start up companies on how to approach a VC firm for funding. It is indeed a great read and what makes it more special is the source where it is a coming from - a VC himself.
Some points that Raj enlists can be a make or break for start up companies especially where lack of research or insight makes the start up companies believe that there is no competition for them online. The best line that Raj pitches for start ups for me is:
Your Real Competitive Advantage is Being Different In The Long Term. On the internet, there are at least 25 companies that are or can compete with you on almost anything you do. Often times, it’s all about execution but we want to see if there are fundamental factors which will help you outdo your competition—very hard technology/IP, network effects in your business that will make it hard for others to catch up (such as with Wikipedia, Google AdSense, Facebook, Twitter) or a fundamentally different business model that will be hard for an incumbent to change (for instance, it wouldn’t be easy for Electronic Arts to cannibalize its retail games with free to play online versions).
Here is the link to the post on Techcrunch: http://www.techcrunch.com/2009/12/13/how-to-pitch-vc/
Once you start thinking more and more like the VC does, you are bound to make reasonable arguments in favor of and against the proposal that you have just worked on.
When it is time for you to take small business finance, you have to learn how to calculate your requirements properly. There are various elements that affect the amount of money you need. The crucial consideration to get funding as a start-up is making sure the start-up entity is structured and well organized.
Here's a great piece on creative startup financing by Paul Graham: http://www.paulgraham.com/startupfunding.html
I think it would help founders to understand funding better—not just the mechanics of it, but what investors are thinking. I was surprised recently when I realized that all the worst problems we faced in our startup were due not to competitors, but investors. Dealing with competitors was easy by comparison.
