As a Small Business Leadership and Management Best Practices Coach, I have worked with over 400 companies during the last 10 years, with varying degrees of engagement including financing and C Level Management. Many of these companies were true startups with an idea, and one employee, the entrepreneur, and some were more mature and ready to scale.
There are over 25,000 of these companies trying to start a business in North Carolina alone each year—nationally the number is close to a million new companies each year. Historically the failure rate for these small companies is about 80% before their second anniversary—quite a waste of time, energy, money, and passion. I have a couple Blogs posted at www.bradlienhart.com discussing this high failure rate.
The Kaufmann Institute says start-ups have a 70% better chance of success if they have some structured training and that includes a good Mentor. That will usually cost a little bit of money but it will be well worthwhile.
I submit the main reason a lot of these start-ups fail is because they don’t realize it will take $25,000 to $100,000 over the first 18 months to start the simplest enterprise—service or product business or a combination.
That is one of my main requirements before taking on a new client, that they understand it is going to take money (several 10’s of thousands of dollars) to become break even and have sustainable growth—and if they don’t get that we are all wasting our time.
OK, we have existing cash or the collateral and credit score to get it—it’s not pie in the sky but we know how to raise these funds. You have heard the saying you “guard these dollars like hen’s teeth”, so where do we allocate these dollars to get the biggest return?
Six Start-up Areas to Spend Funds
There are six areas a start-up should use funds for and these will be some of the best dollars you ever spend—in addition you will be testing “highly recommended” service providers and they can be some of the strongest partners you ever will have as your business continues to grow.
You will just look like a more solid, thought out business model with a strong support team, and believe me your investors and lenders will like the fact that you Know You Need Help in the specialized areas.
1. Accounting Services and tax prep = I guarantee you a good accounting professional can save her or his wages in keeping your business in full compliance with the tax laws and looking for opportunities to save money and maximize business deduction—and you will get regular monthly P&L statements to measure spending against plan.
2 and 3. General Counsel and IP Law: Don’t try to be your own General Counsel and certainly don’t take on IP law. We have really good professionals in the area who are committed to working with small businesses, and they don’t cost an “arm and a leg”. You can try to incorporate yourself, develop a contract format yourself, understand IT cyber security, or write your own patent—believe me those are huge wastes of your time and ultimately you will have missed things you will regret.
4. Direct Marketing: Find a good marketing agency to develop a complete marketing package which starts with developing your business name, your logo, you branding, website, social media platform, photos and videos for various purposes particularly branding and marketing, ad buys social and print, print literature, SEO and metrics, blogging, message development for different media, and the Business Development strategy to go along with the marketing media package. You probably think I just spent all your money but you can get started with $5,000 and a monthly retainer covering important ongoing marketing services. Without it you will not have a growth engine.
5. Human Resources Management: As you add 2-4 employees part-time or full-time add an HR Professional to your Team. HR law is very complicated and it is not where you should be spending your time. It’s easy to make mistakes with payroll, workers compensation, and other state and federal tax laws.
6. Insurance: I could has added insurance of different types but I assume that is obvious. You need a business package that includes cyber security and business loss protection. If you have a Board you need D&O insurance.
As the business owner and CEO, keep your eye on the prize and hire these six professionals to do their special support services, keep you legal and out of trouble.
Author: Brad Lienhart, Lienhart Leadership Coaching and Consulting, April 15, 2020. www.bradlienhart.com/lienhartb@yahoo.com.