Entrepreneurs are typically so focused on saving enough cash to stay alive that you don’t see them blowing money. It’s rare to see fat expense accounts or even market rate salaries. While spending too much isn’t the problem, spending on the wrong thing at the wrong time often is. Here are eight common mistakes:
–Spending too much too early. If you don’t have a product yet, don’t spend much on anything other than developing the product.
–Not spending enough. When the flywheel is really going, it might be necessary to spend money on increasing sales and marketing to grow even faster. In other instances, it becomes essential to spend more building the architecture and systems to stay ahead of the growth.
–Hiring a sales team early on. If you have an enterprise product under development, having a big sales team before you have a product is a mistake. Salesforce.com, where I am a board member, is a great example of a company that did not invest in sales until it was necessary. Instead, it invested its resources in developing a great product. And the founders and early employees pitched the service wherever they went—including while waiting in line at the supermarket.
-Beefing up on administrative matters in the beginning. Building HR or finance teams too early is not prudent. Initially, those can—and should—be outsourced.
-Falling for office space. Most entrepreneurs are frugal, with one exception: some become enamored with office facilities. While many entrepreneurs start in a garage, apartment or the dorm room, there are others who fancy a cool location or space to grow into—that’s something that can be very costly.
-Paying full salaries. Offering high salaries at an early stage is a recipe for burning cash. Everybody should be taking a risk. Compensation should be a combination of salary and equity.
-Underutilizing all of the available resources. If you need help, ask for it from your advisers and board. Don’t think of your board members just as people who tell you what to do; put them to work. The best entrepreneurs know how to leverage their network and are not shy about asking for advice and introductions.
–Wasting time. Time is just as valuable as capital and managing it well is just as crucial. You have to do as much as you can every day, week, month and year—utilizing time effectively is one of the most important skills in an entrepreneur’s arsenal.