5 Common Obstacles to Startup Success: And How to Steer Clear
Paul Finkle, CEO of SharedHR, co-authored this post.
We know startups. From our experience launching our own companies, to now providing outsourced services and support for the next generation of startups, we know the mistakes most organizations make. SharedHR provides HR support, and Early Growth Financial Services provides financial support to early-stage startups. Between us, we’ve helped hundreds of organizations to establish and manage the essential systems and processes needed to succeed.
Over time, we’ve realized there is a common set of mistakes that many early-stage startups encounter. But with our combined experience, we’ve also realized that with the proper knowledge, planning, and support, these mistakes can be easily avoided.
1. Lack of planning. Perhaps you’ve heard the “rumors” that business plans are dead, outdated, anachronistic holdovers from days gone by. Don’t believe it. Business planning is essential for your success. You must establish clear organizational goals and then develop appropriate plans (most significantly—your HR and financial plan) that connect and support your short- and long-term business objectives. Once you know your plan, you are well positioned to establish both your offensive strategy—for example, how to attract top talent, how to get funding—and your defensive plan—such as managing your cash burn so you don’t run out of money before you build traction, and protecting your organization from compliance issues.
2. No infrastructure. You can’t begin to build your organization on a shaky foundation—or no foundation at all. That’s why it’s so essential to establish solid infrastructures. For HR, that infrastructure includes getting systems in place for payroll, creating your set of employee documents, thinking through your company culture, setting your benefit structure and compensation insurance, and, of course, human capital management (i.e. building your team). For finance, your infrastructure includes setting up your accounting system, stock administration management, cash-flow forecasting, and proper cash management.
3. Lack of understanding of financials. Companies that don’t forecast and proactively manage their cash are headed for trouble. You need to calculate your operational costs and other expenses to create a bottom-up financial forecast. Based on these figures you can then calculate your burn rate. How are you going to achieve your milestones if you’re not keeping an eye on your burn rate?
4. No hiring strategy. Early-stage startups make so many hiring mistakes, including hiring too quickly, and making bad hires. Since employees are one of the greatest expenses of any company, you can significantly lower your costs by creating a thoughtful hiring strategy that helps you to save money on staffing in the long term.
5. Rushing to scale. Every business wants to scale at some point, but rushing to scale is a risky proposition. If you haven’t yet figured out a way to acquire customers at a lower cost than the lifetime value of those customers, your business model is not yet scalable. Before scaling, you need to have your systems in place and have a clear understanding of how growth will affect your cash burn. Instead of rushing to scale, create smaller meaningful milestones for your company to achieve to ramp up.
For more guidance, check out these essential HR and Finance checklists.
Paul Finkle is President & CEO of SharedHR. Paul has over 30 years of experience in providing a flexible, integrated mix of HR outsourcing, HR and management consulting, and software services for small and medium size companies. He is a guest lecturer at the Stanford Graduate School of Business and an expert witness for complex employment litigation.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.