There are many reasons why startups fail — hiring the wrong team members, failing to achieve product-market fit, building the wrong product, and more. However, there are a few things startup founders can do to increase their odds of success. To start, entrepreneurs must reduce cash consumption. For many tech entrepreneurs, stifling startup burn rate is a mission-critical undertaking paramount to the sustained success of any high-growth organization.
Reducing burn rate means more runway for your startup. If you can reduce the outflow of capital without putting the breaks on growth, it's a win-win!
4 Ways to Reduce Startup Burn Rate and Scale Like a Tech Superstar
During startup growth, the most important thing entrepreneurs can do is attract financial investment. With the right funds in place, startups have the functional capabilities needed to scale at a higher velocity. However, before seeking venture capital investment, startup founders must outline their goals and objectives. What is the startup hoping to accomplish with these funds? Moreover, startup founders should conduct a simple situational analysis. Is now really the right time for funding?
After securing financial investment, startup founders must institute the following practices and procedures to reduce startup burn rate:
- Focus on return on investment
- Hire the right people at the right time
- Have an MVP before seeking financing
- Select the right space to scale
Focus on Return on Investment
After landing an investment round, many startups make the mistake of overspending. When you have the cash to spend, buying flashy office equipment or hiring a team of top-tier designers is extremely tempting. Even with an influx of funding, startup founders must spend smartly. Before every purchase, startup founders must make sure that every penny is driving startup growth. How will that new piece of software help team members? Is now the time to hire that product designer or developer? Be sure to evaluate the anticipated return on investment and spend strategically!
“Most businesses require certain supplies to operate efficiently,” says April Maguire, contributor at QuickBooks. “And while you may be tempted to spend money securing the latest technologies to impress clients and investors, experts caution against overspending in this area while your business is in its infancy. Instead of purchasing the newest software and technology, consider utilizing free software to facilitate operations.”
Hire the Right People at the Right Time
Secondly, startup founders must avoid hiring prematurely. Does the startup really need a marketing person before securing an MVP? Probably not. Instead, founders must focus on the roles that they need right now. If adding new product enhancements is your current objective, hire a talented and experienced developer. Are you struggling to handle customer requests and inquiries? Consider hiring a customer support team. Spending too much on hiring is one of the reasons startups burn through cash.
“It’s common for startups to hire too quickly before they’ve properly evaluated their needs,” says Henry Kressel and Norman Winarsky, contributors at Fast Company. “In the haste to get revenues flowing, hiring errors are common, particularly if you confuse the sales and marketing functions.”
Moreover, startup founders shouldn’t be afraid to fire underperforming employees or those that don’t align with the startup’s core mission or culture. In the end, compensating these people for their weaknesses contributes to startup burn. Moreover, culturally misaligned employees tend to spread negativity and resentment.
Have an MVP Before Seeking Financing
Thirdly, startup founders must secure a minimum viable product before seeking financial investment. With a minimum viable product in place, startup founders can focus their funds on product enhancement, iteration, and more. Without a minimum viable product, founders run the risk of allocating funds towards building an unproven product. There’s nothing worse than creating a product that consumers don’t want or need. This is a quick way to burn through valuable venture capital funds. In fact, most experienced venture capitalists require a minimum viable product before investing!
“Entrepreneurs also need to demonstrate traction in their pitches,” recommends Adam Quinton, contributor at TechCrunch. “That means they need to show that real users are using the product and that there are early signs of potential for a much bigger market opportunity.”
Select the Right Space to Scale
Finally, many startups make the mistake of overspending on costly office lease agreements. Additionally, many of these offices needed to be outfitted with office equipment, furniture, and more. These costs can quickly contribute to startup burn.
Instead, founders should consider joining a coworking community. These types of workspaces provide members with fantastic amenities, resources, and more. These special offerings allow members to maximize their functional capacity, focus on growth strategies, and more. Joining a coworking space provides excellent cost-savings to entrepreneurs and startups!
Moving Your Startup to a Tech Campus
Are you struggling to reduce your startup’s burn rate? Following these simple practices and procedures allows entrepreneurs to better predict financial runway and reduce burn. For additional financial insight, growth strategies, and more, many industry-leading startup founders choose to join a growth-oriented startup community.
RocketSpace is purpose-built for high-growth tech startups and scale-ups. With locations in San Francisco and London, RocketSpace provides members with access to workspace, events, resources, and more. Our tech startup ecosystem allows entrepreneurs to scale at a higher velocity, tackle industry roadblocks with ease, build next-generation products and services, work alongside corporate giants, and more!
“We chose RocketSpace because of its track record of accelerating successful companies including alumni Uber, Spotify, and Weebly,” says Maci Peterson, co-founder and CEO at On Second Thought. “What we’ve appreciated most are the introductions to corporate executives from large players in our space. In the past few months, I’ve met leadership from PWC, IBM, and State Farm who have become useful resources thanks to RocketSpace.”