Starting a new company isn’t easy. Only a fraction of startups founded each year survive five years, and even fewer are led by young entrepreneurs. Business leaders who have experience running companies tend to be more likely to found a successful startup than first-timers, as is the case for many millennials.
That said, there are some advantages to being a millennial entrepreneur. This generation is known for having innovative ideas, drive and spirit, all factors that can contribute to building a successful company. The trick is to avoid being among the 24 percent of startups that failed due to lack of money.
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Below are some mistakes you should avoid to avoid becoming another statistic.
1. Poor cash flow management.
The amount of cash coming in and out of a startup needs to be managed very well, especially in the beginning. According to the Association of Certified Public Accountants, 82 percent of businesses fail because they don’t pay attention to cash flow. Unfortunately, many millennials aren’t financially savvy, making cash flow management a major responsibility for a millennial-run business.
To avoid this mistake, all you need to do is pay attention to what’s going on with your finances. Keep track of where all your income comes from and how it’s spent. Set up a system (as simple as an Excel document) to keep track of everything. If you don’t, you’re opening yourself up to problems like not knowing your profit margins, not having the records you need to get investors, or inadvertent theft.
2. Raising too much money, too soon.
It can be easy to spend a lot of time planning how to raise money from investors and venture capital firms at the beginning of a startup. Many young entrepreneurs consider the amount of money raised at the beginning to be a measure of success. However, focusing too much on fundraising can be detrimental to the business.
Spending all your valuable time and energy on generating as much funding as possible can distract you from other, more important tasks. For example, instead of establishing solid business strategies and planning thorough marketing campaigns, millennials can get caught up in the fundraising game.
Keep in mind that with proper planning, your company will make money. If your company makes money, you’ll be able to run your startup with minimal outside control or ownership. That’s often far more valuable than having some cash in your pocket when you start out.
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3. Trying to control everything.
It’s all too common for young startup leaders to try to control everything because they feel like they’re the only ones who know their products, services, and business plans inside and out. However, in addition to the risk of burnout, taking charge of every aspect of their financial planning can be detrimental to their success.
Because of the relative inexperience of many millennial entrepreneurs, it’s often a good idea to get advice and opinions on your financial strategies, whether from an accountant, financial planner, or friendly neighborhood business owner with an eye for finances. If you don’t, you risk making ill-advised financial decisions that could sink your startup.
Another option is to hire a person or team to help you. As long as you are clear about your vision, outside help can save your bank account and your sanity.
4. Hiring the wrong people.
It’s important to hire a team that will support you and sometimes save you from yourself, but hiring weak members can quickly drain your finances and ruin your startup. Be aware of who you’re hiring and the assets and liabilities they bring with them.
The costs associated with hiring the wrong people are significant. Not only do you pay their salaries, but you also have to pay for training, recruiting, and other related expenses. Plus, weak employees result in lost productivity and sales. If you’re not getting a return on your investment, then what’s the point?
With this risk, it can be tempting to hire low-cost staff and consultants. Don’t fall into this trap: you will often end up paying dearly in the long run as they may be inexperienced or unreliable, which will cost you more in the long run.
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5. Spending in the wrong places.
Millennials are an idealistic generation, there’s no doubt about it. While this characteristic can be very useful in generating innovative ideas for startups, it can also be a hindrance to their practicality. For example, many young entrepreneurs spend too much money on developing their new product or service and not enough on promoting it.
If you spend all your time and money trying to perfect a prototype without going out and selling it, you’ll miss out on several benefits, such as customer feedback, users, and acquisitions. You’ll lose time that you could spend engaging with your customer base and learning what they really want.
There’s no reason why millennials can’t found successful startups. With the drive and spirit of this generation, innovation is limitless. By avoiding financial hurdles, young entrepreneurs can put their big ideas into practice.
