5 Things Founders Don’t Budget For: VC Reflections
Sometimes, the reason a startup doesn’t reach its full potential is simply because they ran out of money. A solid budget is a core component of growing a startup, but what do founders really need to budget for? We got some advice on the topic from Springtime Ventures who have over 40 active investments where they’ve seen a lot of mistakes high-growth startups make with their budgeting in early days. Here’s the top 5 areas they’ve seen oversights arise for founders:
For most startups, sales take longer and AOVs come in smaller than expected. We all know the pro forma financials are wildly aggressive guesses, and that’s OK. But founders should be prepared to manage their business with less revenue than anticipated.
It is inevitable that you will hire someone that is not a good fit. When this happens, founders need to take decisive action to fire bad hires quickly — including bad co-founders. Cut that portion of the burn, learn from the mistake, and refocus on getting the right person on the team. By delaying a firing decision startups throw good money after bad, dragging down runway and team morale.
Law of $hitty Clickthroughs
Over time all advertising becomes more costly per click and provides lower yields, making a double-whammy of driving down ROI. Startups don’t budget for this, especially because their ROI will be high early on and maintain at those levels for a year or two. But they wake up one day and realize they’ve expanded to multiple channels and a more expansive strategy to reach the same levels that cost half as much a few months ago.
First-Time Founders: Product Development Delays
First-time founders spend too much time developing product, spending more on dev resources and pushing revenue out further. That big V2 roll-out in the works that will finally turn the corner for big sales contracts? It takes six months longer and costs 50% more. All the while, they’ve held back on sales, increasing burn and decreasing runway. First-time founders fall into this trap too often.
Repeat Founders: Higher Churn
Repeat founders learned their lesson with product development delays. They lived the pain of the Seed Extension round that fell through on their last startup because they didn’t have the revenue to back the raise. For their next act, they get out to market too soon, win customers before the product can fully support them, and have higher churn as a result.
Budget is always a key operations concern that makes or breaks the life cycle of a startup. We hope these reminders were helpful as you consider how to build your own budgets. Springtime Ventures hit on a number of really powerful insights in the issues they laid out – have any follow up questions or areas you’d like to have explained? Let us know.
And if budgeting is overwhelming and you want to take this off your plate, airCFO’s service can take care of your budget for you. Click here to set up a call with one of our in-house specialists.