When you start a company, you usually have a grand vision for how things are going to work. You will provide X service, Y number of people will sign up, you will make Z million dollars and retire to the Bahamas, right?
Ha! If only!
Starting a business is actually the very humbling experience of having everything you thought you knew dismantled one thing at a time, until your whole world is turned upside down and you are running a totally different company than you ever thought you would.
And that’s if you surrender to the process. Fight it and you will most likely end up with no company at all. (Unless you are one of those infuriating people who happens upon a runaway success. But we won’t talk about those people.)
Your goal when you start your business is to learn as much as possible as quickly as possible, and to lose as little money in the process as possible.
But you will lose money.
That is simply inevitable and you have to accept that when you enter into this entrepreneurship game. Your goal is to risk as little money as you can (or is reasonable) at any given point in time and to methodically lower the risk inherent in every aspect of your business, one piece at a time.
Steve Blank, the Silicon Valley super-entrepreneur (he’s taken not one, not two, but FOUR companies public), professor of entrepreneurship at Stanford and grandfather of the Lean Startup movement explains that most people make one fatal mistake when they start a business: they run startups like they are established companies.
So what is the difference between a startup and an established company (other than you know, size, revenue, staff, etc)?
The biggest difference is this: an established company knows its market and knows its product. Those are knowns.
Startups are a hypothesis. They have an idea of a market and an idea of a product, but they have yet to prove either one. Those are unknowns.
This is the single most important thing for you to internalize when you start a company: you don’t KNOW anything. You may have the most brilliant idea addressing the most pressing need in the largest possible market, but until you have a product out in the market it’s all hypothetical. A fantasy, if you will. So your only job is to systematically test your hypothesis while losing as little money as possible.
Look, I get it! This mindset can be hard to get used to, especially if you are used to working at established companies and are used to thinking about lots of (expensive) things as MUST-haves. Letting go of these must-haves is one of the hardest parts of being an entrepreneur.
You are about to enter a new world where everything you have taken for granted — job security, a paycheck, an office, a staff — will be taken away and replaced with a dwindling bank balance and a constant fear of failure. Sounds great, right?
So how do you know if something is a must-have or not?
As a general rule of thumb, nothing is a must-have. Literally nothing.
But there are certain things that you are likely to think are must-haves that are definitely not. With that in mind, here are eight things you will think you should spend money on but that you absolutely should not when you are starting out:
1. Your Website
If you can, do it yourself! (If you want to learn how, try a Skillcrush class). Your site, your features, your navigation — it’s all going to change a million times. Perhaps even every week. Especially in the beginning.
Spending a lot of money on a beautiful, perfect first version is not a good use of money. There’s a term in tech called “MVP,” which means the minimum viable product. Spend only what you need to get there and save your money for building what you know your customers will buy down the road.
2. A Launch Party
Unless you are an event planning business and you’re showing off your new chops, a launch party is a waste of money. Yes, it is important to celebrate with your friends and family that you are taking the leap to start a new business. But a fancy schmancy party with catered appetizers, schmoozing and drinks doesn’t bring revenue in the door, which is the only thing you should be focusing on.
3. Fancy CRMs or Project Management Software
Use Google Docs or Dropbox until you and your team are at a place big enough for needing this kind of organization. There are plenty of free solutions — Google Spreadsheets, for example, are amazing for creating project and task management trackers. Save the money until you know what kind of system you are going to need.
4. A Publicist
Get your product right, build up a plethora of success stories and then go talk about how people should be using your product or service in the greater media. Press sends eyeballs and page views to your site, and unless you have already figured out how to optimize for converting those eyeballs into customers, your publicist’s hard work is a lost opportunity. This is not to say that early press is a BAD thing, and if it comes your way, awesome. It’s just that you want to be ready to really take advantage of press opportunities when they come your way. You simply won’t be able to do that until you have more aspects of your company figured out.
Pro tip: If nothing else, make sure you have an email capture on your site. That way you can always get people’s emails and build a relationship with them over time via email marketing.
5. Office Space and Office Furniture
I know, I am such a buzz kill! I totally understand that working out of a coffee shop or home office isn’t functional for everyone. So if you need it, go get yourself a low-cost shared office at a co-working space.
Serious entrepreneurs don’t confuse nice-to-haves with must-haves. They spend every dollar like it’s their last and go without as long as they can. And most importantly: they don’t confuse acting like you are running a business with actually running a business.
In other words, although it may feel good to get yourself a nice office and outfit it with new furniture, those are all nice-to-haves, not must-haves. Learn to know the difference.
One of the hardest things about starting a business that sells actual physical goods is you have to have something to sell. Right? Yes. But before you spend megabucks on producing your products, you must prove that there is demand and that you know how to distribute your wares.
Better to risk losing some revenue because you’ve sold out than to lose money on goods that no one will ever buy. Be smart and prudent about how much you make. The smartest entrepreneurs I know have even sold their products before they are completed or manufactured! Sounds crazy, but it’s a genius way to guarantee that you are making, not losing, money with an order.
Now, I do think you should spend money on a good lawyer and incorporation documents (see the end of this piece). However, I see entrepreneurs spending way too much time on naming, logos and trademarks.
Here’s the thing, names change — all the time. So please don’t spend a ton of money and time trademarking things, especially your brand.
8. A Sales Team
If you go to a quiet co-working space and listen really carefully, you will hear a chorus of entrepreneurs around the world all saying the same thing: “My product is AMAZING, I just need to find someone to help me sell it!”
Guess what? If you can’t sell your product, no one can.
Ok, that may not be literally true, but the idea is true. Being able to sell your product, learning how to clearly articulate its value to another human being and make the sale isn’t an ancillary task that you can outsource to someone else. It’s core to your business and as fundamental as being able to create a product that someone wants. And you must learn to do it yourself before you hire someone else to do it for you.
Alright, after all that, what should you spend money on?
Invest in yourself by taking courses, going to conferences and generally increasing your knowledge and skillset. It’s a guaranteed return for this business, for your greater career, and even for your next business.
2. Good Incorporation Documents
You simply have to protect yourself legally and having a lawyer help you set the right foundation is worth it.
Adda Birnir is a member of the DailyWorth Connect program. Read more about the program here.