Entrepreneurs today are fortunate to have access to more sources of funding than ever before. Access to capital has created a flourishing tech sector, with new companies founded every day. But, with more money comes more problems, and startups frequently burn through cash by wasting it on things that have nothing to do with improving the product or scaling the company.
When we first started SevenRooms, a hospitality technology platform, we realized the only way to grow sustainably was through careful spending on things that really matter: the product and the team. By investing heavily in our platform and talent — and not on the latest startup fad — we can now count ourselves among the 3 percent of startups that make it five years and beyond.
For entrepreneurs who hope to create companies that can thrive for the long-term, be sure to avoid spending your funding on any of the items below.
Pimping out office space
Lavish office spending before your company even finds product-market fit is never a good sign. Your job is to keep the lights on and your employees paid, not to brag about the La Croix vending machine.
In fact, do you know where you can score awesome office decor on the cheap? Just look for startups that spent way too much on their offices and are now out of business. When we doubled our office space a few years ago, we hunted around on Craigslist for used furniture. We ended up at a couple of nearby startups that were shutting down. I remember feeling horrible about pillaging the spoils of their failure, but when I learned they had a $7,000 ping-pong table, standing desks handmade from reclaimed wood and custom-built call rooms outfitted to look like British telephone boxes, I felt a lot less bad.
Buying an expensive domain name
One of the very first highs for every entrepreneur is the moment you think of the perfect name for your business. It’s almost always followed by an inevitable low: Your domain name is already taken. It may be tempting to spend a big chunk of your initial funding to acquire the domain, but don’t. As any seasoned entrepreneur will tell you, people are going to use your product because it’s good, not because the name is cool. By dropping a ton of capital on the “perfect” name, you’re throwing away dollars that should be used to hire the talent you need to bring your product to market. Plus, the initial idea you pursued is likely going to evolve over time. It’s important to first drill down on your core value proposition before making a significant investment in the brand.
Hiring an executive assistant
Who’s going to schedule all your meetings and get flowers to Mom on her birthday? If these are your first concerns when starting your business, then you have your priorities all wrong. In an early stage company, every single hire needs to help you build out your product and prove your value proposition. The more builders you have, the faster you can move, and in the startup world, speed is everything. There’s plenty of free or inexpensive tools you can use to track emails, schedule meetings and automate your day. You’ll be happy you had the extra wiggle room when you can hire talent that will impact your bottom line.
Expensing your lifestyle
You just raised some money, so time to upgrade your lifestyle, right? Wrong! Whether you raised a few thousand dollars or a few million, you should never, ever excessively spend your funds by flying first class, staying in fancy hotels or expensing meals at top restaurants. Runway is the difference between the life and death of a startup, and you should do everything in your power to extend it. Every dollar counts, so if that means living on ramen noodles or with three roommates in a tiny walk up apartment, so be it. If you want life with an expense account, go back to the corporate world.
A large part of being a successful entrepreneur is the ability to figure problems out as you go. We’re lucky to start businesses in a time when you can do a quick Google search or contact a fellow founder for help on LinkedIn or through an alumni network. They can provide a wealth of information from people who have already been in your shoes and have valuable advice on how you can figure it out for yourself. Instead of rushing to hire third parties because it “feels” too hard to learn on your own, roll up your sleeves and see what you can accomplish. You might just surprise yourself.