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All About Startup Costs And What You Ought To Know

It is great of you to be industrious and start a business after all every big organization started somewhere. But before you actually open those doors, there are some particular financial facts and costs that you must understand. All of them are applicable irrespective of whether it is a home-based firm, an e-commerce portal, or brick and mortar company.
Of course, you can pay an accountant or a business advisor and have all these information explained to you. Or, you can go through this post and learn more about the costs management for startups – for free!

But first, what is the essence of Costs Management for startups?

Finance forms the lifeline of any business as the more money it is injected in, the bigger the returns. For someone new in the business world, proper management of costs directly has an impact on how the business takes off and thrives. And, even if the idea is highly lucrative or you have a lot regarding capital, it is better to understand the art of managing costs.

Have a look.

Types of startups costs

  1. Fixed Costs: They are all those costs you incur, yet the don’t change as you sell a unit of product or service. Fixed costs can either be marginal or variable fixed costs. To better understand them before starting your business, read the following:
  • Professional fees – what you pay the lawyer, accountant, solicitor, and any other expert professional expert to help sort out the legal perspectives of your startup.
  • Insurance – public liability insurance, building insurance, car insurance, employee insurance, etc.
  • Premises renting costs – rent, building costs, power bills, water, telephone, gas, etc.
  • Staffing and employment – advertising and recruitment costs and training courses.
  • Financing
  • Stock
  • Sales marketing
  1. Variable costs: They increase if you sell an extra unit of a product or service, and usually fall under direct product costs like:
  • The actual cost of an item – from the stock
  • Shipping costs
  • Packaging costs
  • Sales teams’ commissions and Remuneration
  • Salaries and wages

Cost Management

Much like every enthusiastic entrepreneur, you will be eager to give your startup as smooth start as possible. While you might be tempted to rush things up without focusing on better deals, the smoothness of the capital and everything, just try to do the following:

  1. Lease or rent instead of buying so that the initial costs remain as low as possible.
  2. Hire term and temporary workers so that you can avoid meeting employee tax, insurance, NI, and pension payments.
  3. Make use of price comparison websites that still offer routes to the best deal for utilities.
  4. Pay as you go is perfect for starting, instead of tying yourself into long contracts and expenses that will not allow getting out easily

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Why startups fail

Imagine a start-up that promises to deliver groceries within 30 minutes of receiving the client’s order; a start-up which raised close to $800 million from blue chip VC funds like Sequoia Capital, Benchmark Capital, Softbank, Goldman Sachs and even Yahoo. The company also raised $375 million from its IPO where it sold 25 million shares at $15 each. All this happened within just a few months of the company’s creation. This start-up was valued at 1.2 billion dollars before declaring 830 million dollars in losses and going bankrupt. This is a true story. It happened in 1999. The company was called “Webvan”.

Were you also aware that the solar power tech start-up “Solyndra” filed for bankruptcy in 2011, after burning its way through $1 billion in venture capital funding and, “Better Place”, a start-up provider of battery stations for electric cars, shut down in 2013 after losing $850m?

When we think of start-ups, we usually think about Google, Facebook or Whatsapp. However, these companies are an exception in the world of entrepreneurship. Normally, start-ups do not become glamourous companies with billions of dollars of capital. In fact, it’s usually to the contrary. They frequently fail. According to Forbes, the failure rate of start-ups is around 90%, so what are the main reasons for these failures?

In our experience as start-up mentors and private investors, we consider the following to be the main causes of failure:

First of all, we have problems with adapting to the market. One of the main reasons for failure is that the market is non-existent or inappropriate for the product developed. This shows itself in different ways, for example:

  • Clients are not prepared to pay for the product or pay the price necessary to sustain consolidation and expansion of the company.
  • There are clients prepared to pay for the product but the market is not large enough.
  • Inadequate market timing. In this case, the company must find ways to generate revenue wherever possible. Later on, we will describe some real example of start-ups in this situation and how they resolved their issues.

If the market size and market timing are correct, we can however encounter problems with the business model, specifically problems due to the enormous differences between the CAC – Costs of Acquiring the Customer and the LTV – Lifetime Value of that Customer.

The key to any start-up, and in general to any business, is that the cost of acquiring a customer should cost less than the benefits generated by this customer during his or her relationship with our company. The CAC must be less than the LTV by some significant multiple. Generally, a large number of entrepreneurs are too optimistic regarding the costs of acquiring customers.

Another major flaw is the inability to materialize sales, especially in B2B start-ups. Most start-ups will never exceed $1 million in annual sales. In fact, to overcome this barrier would be a key milestone for most of them. The sale of big deals is essentially based upon the application of specific techniques which allow us to define and implement ad-hoc strategies to create and win big opportunities. The majority of start-up sales teams simply do not know how to do this.

The next reason is usually inadequate management of cash flow and costs thereby causing the start-up to run out of cash. This situation is usually produced due to an inability to comply with a milestone. This non-compliance brings with it difficulties to obtain funding which together with greater non-efficiency in cost management (Strategic Costs Management), leads to bankruptcy.

During the early stages of the business, it is key to conserve money and effectively manage the company’s costs to avoid the “burning expenses” which unfortunately, many start-ups incur. For example, it makes no senses to spend enormous amounts on marketing if the product is not yet finished. The company’s costs must be managed efficiently and money reserved for the right moment when we need to manage the desired “hyper-growth”.

And lastly, on many occasions, start-ups fail due to the inability of the Management Team. Why? Well, amongst other things, a good management team would not commit any of the mistakes we’ve just spoken about.

We are preparing a course to improve the management abilities of entrepreneurs with the aim of greatly increasing the possibility of their start-ups being successful.

Will come soon. Any feedback here is more than welcome

@buildthepipe

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Driving Growth through Business Strategy

In the current context, for the majority of companies, sustainable, profitable growth is illusive. Could you be an exception? Can you achieve high-growth for your business? Yes, you can, using our methodology for developing successful Business Strategies.

The Business Strategy Blueprint is a holistic methodology for developing a Business Strategy, based on our extensive experience as business advisors.

Business Strategy Blueprint

First of all, the Key Business Objectives pursued using the Business Strategy, must be identified. These objectives make up a small number of goals to be reached which deal with different perspectives of the business.

A market analysis where the company is positioned and operates (Market Data), is carried out further on. It is a question of analysing the starting point to reach the desired objectives.

One of the principal Key Business Objectives of any company is to achieve sustained growth and profitability (except non-profit companies). Therefore, in addition, the possible drivers of Organic and Inorganic Growth that support the global growth objective must be identified.

Together with the Growth Drivers, the Enablers will be developed. These are initiatives which make a series of solid and flexible abilities available to allow the Business Strategy to become a reality.

The roadmap of how we plan to achieve our financial model is set out below.

Lastly, the Implementation Roadmap, including all the actions necessary to execute the Business Strategy, is defined.

Business strategy Training

 

 

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New Year: Plan Year Ahead

Hey,

Happy 2017! We recommend you to plan year ahead:

2017_new_year_buildthepipe

1. Look Back – List the Accomplishments & Disappointments. Jot down what you would Change.

2. Vision Board – Pin Images or Goals to a Bulletin Board. Keep it in front of you at all times!

3. Be Specific – Set Goals. Don’t be vague and put a deadline.

4. Set up Systems – Digital Calendar. Content Calendar. Note Taking Apps.

5. Take some of our new training about Business Strategy or CiberSecurity! Coming February!

Regards.

@buildthepipe

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The Fortune 500 Companies B2B Sales Training – Tips and Scripts

Please, find below the documentation of the “Tips and Scripts” module. Hope you enjoy it!

Click here to download

(share with us your Sales Tips and Scripts as comments of this post). Format to share must be:

  • Component of the Methodology: Account Planning, Building Relationships, Win Strategy, Proposals, Orals, Contracting or Origination
  • Self-explanatory description of the tip or script