Seven ways to reduce your financing needs as a start-up
Recently I was coaching and judging a number of local startups in my hometown, The Hague, in The Netherlands. The interesting fact is that many of those different entrepreneurs have a number of things in common and one of them is that they focus way too much on financing their company, their working capital and their investments and not enough on their customers and how to differentiate themselves from others. And the other thing that many of them have in common, large or small, is that they are asking for way too much money! Their financing needs are way to high. And that is a pity. So here are seven ways to reduce your financing needs as a start-up, inside or outside Fintech.
If you look at the different budgets people are putting into their business plans for starting their company, the following categories can be reduced by at least 40-50% if you are clever. Here they are:
Management: One of the best ways to reduce your financing needs is to limit the number of directors and set up a Lean & Mean Governance model. To be honest, who needs management in your own company? Ok, well, sure just a bit. Let us say two directors but not with a very high salary in the beginning.
Buildings: I still see a lot of business plans where people want to spend a huge amount of money on offices and on other physical assets. Every heard about ‘the virtual organization’ by Jay Galbraith? Common, we are in 2016. If I want to invest in stone and expensive marble, I will do that directly and not in office space. I will buy stock on the Italian stock-exchange.
Employees with a contract: Last week I was talking to a ‘pre-stage’ startup who will not make it I am sure and he wanted a lot of money to ‘hire 5 people’. So we said: ‘why would you want to do that?’ And he said: ‘with 5 people you are a serious company’. Ok fine, but not with my money. So we told him to first get serious revenues and use flexible people with flexible contracts and then to see if and when he needed to grow and how. He did not listen. And that is a pity.
Big expensive cars: Although young people and people like myself have decided a long time ago to drive in a smaller car, I still see a lot of people asking for financing of one or more expensive cars. Although in this area, you can reduce your costs by sharing or by leasing smaller cars. And on top of that, there are more and more mobility-service providers around, so why don’t use the tram, the tube or your bicycle when you are in your home town? That is what I am doing in The Hague and a lot of other places in The Netherlands. And that makes a lot of difference.
Expensive software and hardware: By far the largest part of the budgets I see in plans are related to ICT. In software-development or ICT-infrastructure related expenses. Even if people want to use out-of-the box modules, the costs that ICT-companies are calculating are often horrific. I always say ‘I want a quote, I did not say that I wanted to buy your company!’ Anyway. It makes sense to take a make-or-buy decision but above all look at different providers and see if you cannot white label somebody’s solution.
Expensive external consultants: Let’s face it, one of the biggest advantages of the Net has been that prices of services including of high-level consultancy have become rather transparent. That means that you can get great high-level advice from an expert that will cost you at least half of what consultants of large companies will charge. So why don’t you ask around and see if you do not know somebody in your network? I work with one of my friends in setting-up his company in Fintech and that is great. Working with people you know and trust and that have the same passion as you.
‘I want it all and I want it now!’: One of my customers was actually able to reduce his Financing needs to about a third by just looking at activities and say ‘do I really need that and if yes, do I need it now?’. The fact was and is that very often the answer is ‘no’. So it makes sense to look at all your activities and ask yourself that question. What do you think?
Though if you look at these seven points, it might make sense to look at your plans again and see what you can do to reduce your financing needs. Because as you can see, there are many different ways to reduce your financing needs by at least 40-50%. And that means less headaches, less presentations and more speed in setting up your own successful company. And that was what this was all about, wasn’t it?
Good luck!
Tony de Bree
