1. BE PRACTICAL ABOUT YOUR MONEY
The first and most important thing that I tell new entrepreneurs is the importance of practicality when it comes to to money. I’m blown away by all the “entrepreneurs” who start businesses and at launch, don’t realize the importance of generating money and how to manage profits. Instead of focusing on the present financial needs and building an actual company, they are too busy thinking about how much money they’ll be making four years from now. It’s a complete lack of practicality.
Cash is oxygen. How much money do you have to stay afloat and for how long? Do you have one year’s worth of rent and overhead? First-time entrepreneurs always make this mistake and it’s my biggest concern for them. You have to make sure your actions can respond to the bleeding of cash that occurs before you even turn a profit.
I often see first-time entrepreneurs making one of two mistakes at the start:
(1) They do not have a funded business and haven’t raised venture capital (or any other capital). They only have six months worth of money to make their business goal come true. While they dream up every perfect scenario that will allow them to achieve their dream, by the third day of being “entrepreneurs,” the realization hits that nothing goes perfectly and they run out of cash.
(2) They are so well funded that they don’t build up the necessary muscle to generate revenue. They are so used to the idea that losing $150,000 in burn rate is “fine” because they have a funded company. Most of their attention and behavior is focused on raising their next round instead of building an actual, profitable business.
No matter the situation, starting a new business, particularly one that requires an upfront financial investment and not just your time, drains money. You need to understand financially what it takes in order to pay for necessities like rent, supplies, and inventory (and that doesn’t even include your personal expenses). A high level of practicality is necessary for success.