Funding – the lifeblood of any business. Also, the area where entrepreneurs experience tunnel vision.
“One of the most common mistakes that entrepreneurs make after raising seed funding is that they fail to remain grounded and obsessed with their idea/venture as they were before,” said Ambarish Gupta, founder of Knowlarity Communications, a cloud telephony company which replaces traditional communication hardware system with cloud-based telephony.
Typically, it is noticed that as soon as a venture raises seed funding, the founders tend to spend on things like extensive advertising, SEO, rolling out attractive employee benefits to bring onboard expensive talent etc. While nobody can take away from the importance of these functions, often it becomes a case of too much too soon.
Those who have been resorting to such practices need to wake up to the fact that in the end what defines their success is the longevity and viability of their business and not inflated valuations and impressive download figures.
To help entrepreneurs avoid these mistakes, we, at Inc42, have compiled the six common mistakes made by entrepreneurs after raising a seed round of funding.
Spending More Time On PR, Less On Product
After raising this first round of funding, a majority of entrepreneurs believe that getting the money itself is a great success. This makes them relaxed, and they consequently lose their focus on sales and product and they start spending more time on PR activities and promoting their product through public appearances. For entrepreneurs, it is essential to understand that inviting an investor on board comes with the responsibility to ensure return of investment (RoI), as they are answerable to them.
Not Keeping In Touch With Investors
Entrepreneurs are the one who hold the reins of their business but at the same time, it is crucial for them to keep themselves on the same page with the investors. “Business developments and funding need strategic moves and any inputs from the investor side will only be fruitful for the long run. In fact, you should raise funds from people who add value to your business and help you further in business development and networking,” said Samar Singla, CEO and founder of Jugnoo, a hyperlocal on-demand multi-service provider.
Spending Money Unwisely
As soon as entrepreneurs raise their seed round they may become over excited and this excitement leads them to put their money in wrong direction. They start spending money on marketing without focussing on the returns. “I have seen most entrepreneurs investing a lot of seed money in marketing and advertisements. This is not the right way to go. The founders should spend the seed money on creating a robust, market fit product and hire a core team,” said Amaresh Ojha, founder and CEO Gympik, an online fitness discovery platform.
Scaling Up Too Fast
After raising funds, entrepreneurs usually end up recruiting talent in all departments by offering them big packages to create comfort rather than need. It is important for entrepreneurs to understand that human resource is an asset as long as they are limited because it becomes a liability when it exceeds.
“The mistake of starting to acquire talent from the day funds hit you, could prove fatal, don’t fall for it. Founders have to walk the tightrope of not settling for sub-optimal talent as well as getting the team right, and that too fast. It could take anywhere between three-six months to just get the team right,” said Geetanjali Khanna, co-founder, COO at Fastudent.com.
Fastudent.com is B2B2C DIY education ecommerce platform that has partnered with more than 200 education institutes to help them create their own customised virtual shops.
Trying To Do Too Many Things
When entrepreneurs raise funds, they try to do lot of things at the same time which leads to deviating from the core competency. “With money raised and many opportunities in market, often companies start to do a lot of things in parallel, which may often not fall in their core competency area which indirectly leads to startup failure,” said Nikhilesh Tiwari, co-founder, Helical IT Solutions, an IT company with expertise on DW & BI technologies.
High Burn Rate
When entrepreneurs raise a lot of money, they are not in bootstrapping mode and hence start spending a lot of money without keeping check on the burn rate which is not really sustainable in the long run. To reduce burn rates entrepreneur should make the best use of each and every penny and not spend it lavishly in giving discounts or offers.
“Once you are able to raise funds, you need to utilise the capital in a planned manner. Burning cash by giving discounts and offers will not help you monetize in the long run,” said Samar.
For entrepreneurs it is very essential to understand that raising money is not the only task they need to do after starting up. To manage that money wisely for the long run success of the startup is the most important thing they need to understand. And this can be achieved by avoiding these six common mistakes with due diligence, not losing focus on the product and communicating with the investor to receive guidance and support.