Building a new company isn’t easy. Only a fraction of the startups founded each year survive for five years, and even fewer are run by young entrepreneurs. Business leaders who have experience running companies tend to be more likely to found a successful startup than first-timers — which many millennials are.
That being said, there are some advantages to being a millennial entrepreneur. The generation is known for having innovative ideas, drive and spirit, all factors that can contribute to building a successful company. The trick is to avoid being among the 24 percent of failed startups that crashed due to running out of money.
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Here are some mistakes to avoid, so that you don’t become just another statistic.
1. Managing cash flow poorly.
The amount of cash moving in and out of a startup needs to be managed extremely well, especially early on. According to the Association of Chartered Certified Accountants, 82 percent of businesses fail due to not paying attention to cash flow. Unfortunately, a lot of millennials aren’t financially savvy, making cash flow management a significant liability for a millennial-run business.
To avoid this mistake, you just need to pay attention to what’s going on with your finances. Look at where all income comes from and how it’s all spent. Set up a system — as simple as an Excel document — to keep track of everything. If you don’t, you leave yourself open to issues such as not knowing profit margins, not having the records necessary to get investors or unnoticed theft.
2. Fundraising too much, too soon.
It can be easy to spend a lot of time planning how to raise money from investors and venture capital firms early on in a startup. A lot of young entrepreneurs consider the amount of money raised at the beginning a measure of success. Focusing too much on fundraising, however, can be bad for business.
Spending all of your precious time and energy on generating as much funding as possible can take you away from other, more important tasks. For instance, instead of setting up solid business strategies and planning thorough marketing pushes, millennials can get caught up in the fundraising game.
Keep in mind that with the right planning, your business will make money. If your business makes money, you can run your startup with minimal outside control or ownership. That’s often a lot more valuable than some cash in your pocket at the starting gate.
3. Trying to control it all.
It’s very common for young startup leaders to try to control everything because they feel they are the only ones who know their products, services and business plans inside and out. However, along with the risk of burnout, taking over all aspects of your financial planning can hurt your success.
Due to the relative inexperience of many millennial entrepreneurs, it’s usually a good idea to get advice and input on your financial strategies — whether that’s from an accountant, a financial planner or a friendly neighborhood business person with an eye for finances. If you don’t, you run the risk of making inadvisable financial decisions that could tank your startup.
Another option is to hire a person or team to help out. As long as you make your vision clear, outside help can save your bank account and your sanity.
4. Hiring the wrong people.
It’s important to hire a team that will have your back and occasionally save you from yourself, but hiring weak team members can quickly drain your finances and ruin your startup. Be conscious of whom you’re hiring and any assets and liabilities they bring with them.
The costs associated with hiring the wrong people are significant. Not only are you paying their salaries, you also must pay for training, recruitment and other related expenses. Further, weak employees result in lost productivity and sales. If you aren’t getting a return on your investment, then what’s the point?
With this risk, it can be tempting to hire low-cost employees and consultants. Don’t fall into this trap — you’ll often pay for it in the long run, as they can be inexperienced or unreliable, costing you more later on.
5. Spending in the wrong places.
Millennials are an idealistic generation, there’s no doubt about it. As great as this characteristic can be for coming up with innovative ideas for startups, it can also get in the way of practicality. For instance, many young entrepreneurs spend too much money on developing their new product or service, and not enough marketing it.
If you spend all of your time and finances on trying to perfect a prototype without getting out in the field and selling it, you lose out on several advantages such as customer feedback, users and acquisitions. You will waste time that you could spend interacting with your customer base and learning what they really want.
There’s no reason that millennials can’t found successful startups. With the drive and spirit of this generation, innovation is limitless. By avoiding financial pitfalls, young entrepreneurs can put their big ideas into action.