Many startups overestimate the importance of cash flow. When trouble strikes, their first move is to seek out an influx of cash to bandage problems that you can't fix with money.
In fact, only 3 of the top 20 reasons for startup failure are money related according to CB Insights. The other 17 reasons encompass issues that you can get ahead of without spending a dollar. Here are the top 6 that you have the most control over:
1. Hiring the wrong people
Hiring for experience as opposed to startup fit (skills like multi-tasking, being able to adapt to change, and wearing many hats) from the corporate world or the annual lineup of fresh-faced grads may get you the skills that you need at the expense of a bad culture fit.
Instead of hiring for skills, hire for attitude and potential. Infusing your team with people who don't share your vision or embrace your company's values is like dropping a rotten apple in the barrel.
Guess what happens to the rest of the apples?
2. Big media slips
The prevalence of social media and cable news channels is a plus for getting the word out. But, without media training and prep, your moment in the sun could spell dark skies ahead. For example: Sean Rad, CEO and face of Tinder, has a history of cringe-worthy remarks that re-route attention away from the app and on his odd views.
3. Not managing growth
Whether pushed by greed, customer demand or market expectations, you can't reach the stars without a solid foundation. Despite what "they" say, start small and grow slow.
Doing so allows you to catch bugs, manage customer expectations, and learn from experience instead of constantly putting out fires that could impact your bottom line via customer dissatisfaction or negative press.
4. Market timing
Yes, you may have built "the Google of [fill in the blank], but does anyone care? Timing your product to customer need and market demand is one of the trickiest parts of startup success representing nearly 70% of the failures on CB Insights (product mistimed, ignoring customers, no market need).
As painful and time consuming as it can be, bake in adequate time to thoroughly test product functionality, stress test distribution channels and understand your competitive differentiation before going to market.
5. Sinking money into bad marketing
Making large marketing expenditures in the wrong places can create a cash flow situation that never had to happen. While you may be a pro at building a great product, chances are that you're not a marketing expert.
Rely on your website, social media and personal networks in the early days to give you an idea of where marketing opportunities exist instead of guessing at it.
6. Losing focus
Sub par strategy produces a sub par business model leaving you focused in all the wrong directions as you try to grow. That lack of focus translates into chaos from unhappy investors, misaligned employees and an inconsistent brand image. Avoid the temptation to course correct too soon, resist pressure to add features that don't add value and know when to ditch a faulty strategy and start over.