by Gadiel Morantes, chief revenue officer at Early Growth Financial Services
A Jenga tower is a precariously built one. Just as likely to crumble from the pulling of an important piece as it is from being breathed on, the structure of the blocks determines the game’s outcome.
Think of a tech startup the same way. Its long-term health relies on a multitude of factors, some evident and others completely out of left field.
Having an idea is one thing. Surrounding it with support is another.
Build It Right.
Startup stardom is the new American Dream. Unfortunately, it doesn’t happen for everyone.
Fifty percent of all startups flame out after four years. Forty-six percent of those cases fall short due to issues of “incompetence,” which can allude to any type of structural snafu. To become part of the surviving half, use these methods to ensure your startup’s structure stands strong.
1. Read your books from cover to cover.
Speaking intelligently about your company’s current (and future) performance means regular check-ins with your finances.
Use burn rate as an example. If you don’t understand how much money your company is burning through each month, how can you expect to intelligently talk about your fiscal health? Be diligent about income and expenses and how each relates to your milestones.
Another common issue among tech startups I work with is improper compliance with state and federal tax regulations. It can be easy to forget — not to mention boring — but it presents a tremendous obstacle when it comes to fundraising.
Whether it’s burn rates, balance sheets, or P&L and cash flow statements, financial documents say a lot about your operations — and you need to be able to speak the language.
2. Get it all in writing.
Ideally, tech startup founders stay on till the very end. Realistically, the chances of that are as remote as a freelancer remaining to see it through. Without a contingency plan, companies that unexpectedly lose a co-founder find themselves in muddy water. Intellectual property matters are just one way these problems can materialize.
Look no further than Google and Oracle, and you’ll see that no company is immune from IP impasses. Unfortunately, we work with companies that realize the IP actually belongs to a former partner or the organization that the founders worked for during the product’s early stages.
Obtain a Confidential Information and Invention Assignment Agreement as early as possible to make sure the IP is clearly (and legally) assigned. Additionally, hire a startup-focused law firm with the experience and foresight to dot the i’s and cross the t’s that will save you major headaches down the line. Speaking of which…
3. Bring in the best — from the outside.
Allow me to draw your attention to Slack, a messaging app. It spent its early days outsourcing its solutions. Now, the startup is valued at more than $3 billion.
Take a look at your company’s infrastructure. Are you still doing the taxes even after a half-million-dollar raise? Is your uncle’s “golf buddy” your legal representation? If you answered “yes” to either of those questions, it’s time for an overhaul.
Don’t be afraid to outsource items that aren’t mission-critical. Whether it’s paying taxes, choosing healthcare options for your employees, or obtaining legal advice, you simply can’t shortchange your infrastructure at a critical juncture. Get service providers to help with items outside your business’s focus areas so you can get back to working toward other milestones.
To reach the heights you envisioned, make the foundation of your startup as compact as possible. The easiest things to overlook are the ones that can cripple you or, worse, cause you to lose everything.
Take a micro and macro look at your tech startup to fortify those gaps. It could be the difference between a strong Jenga tower and a flimsy foundation just waiting to fall.
Gadiel Morantes is the chief revenue officer at Early Growth Financial Services, which addresses the lack of on-demand financial support available to startups. With more than 15 years of experience in sales, marketing, and operations, Morantes helps founders streamline the relationship between the sales and business departments and coaches early-stage companies on setting up an optimal infrastructure for success.