It’s been said that you either win or you learn—but learning can be a very expensive process. As a seven-figure entrepreneur who has founded six successful companies, Kristi Holt has learned a tremendous amount about how to make smart business choices over the years.
Holt is a seven-figure, serial entrepreneur and the founder of Vibeonix, a certified voice technology company. “I’ve had great successes: like starting my first company with just $ 10,000 and selling it five years later for $ 500,000. I’ve also had huge learning opportunities that cost me five figures. One of the biggest lessons I’ve learned for avoiding start-up mistakes is to think of my business as a baby and my partnerships like a marriage. Here’s how that analogy can help you avoid some expensive start-up mistakes, too,” says Holt.
1. Use Agreements To Prevent Disagreements
“Everyone wants a ‘ride or die’ partner to be there with them as they go through start-up stages, but this doesn’t mean you have to marry them at first sight,” says Holt. “Date before you get married. If they are the yin to your yang in the early stages of your business, learning about each other before committing to each other is essential.”
Should you choose to move forward with the relationship and “get married,” an explicit agreement early is a must. Draft an agreement that holds the partnership accountable. Define the expectation of roles and responsibilities. What is the “value” you each bring? Who is responsible for cash investment? Who is responsible for implementation? How long will the vesting period be? Holt recommends at least 12 months.
If people don’t meet the deal, let the partnership go. Don’t drag it out; it will only get harder. The discovery phase of a business can be exciting; however, when it is time to spend 80 hours a week implementing, you want to ensure you have a partner that will be right there with you making it happen.
2. Never Take Desperate Money
“You shouldn’t marry for money and the same goes for partnerships. The start-up stage will always take longer than expected. When working through costs, figure out how you could extend your roadmap by at least another six months,” suggests Holt. “Not everyone can go that long without revenue or a paycheck. Make sure you plan accordingly; otherwise, you become desperate and make decisions that are not the best for you or your company. If you’re in a pinch, you will take desperate money, and this is never a good idea.”
To extend your roadmap, do what you can to self-fund or borrow from close friends and family that can support this critical stage. Your greatest asset as an owner is your equity, especially before revenue. Be clear about what you need and how you’re going to get it. You’ll also want to get creative with people who do what you need and consider a collaboration. Outsource rather than hire so you can keep your burn rate lean. Negotiate win-win scenarios for people to win alongside you.
“If you do make money, always do what is best for the company to ensure a strong foundation. Consider all funding agreements and ask for advice from a third party about what deal is right for you,” advises Holt.
3. Crawl Before You Run
“You wouldn’t buy running shoes for a baby, so don’t invest in senior-level executives for your start-up either. Don’t hire “experts” until you know what you need. Don’t commit to large salaries in the early stages. And certainly don’t prematurely dump tens of thousands of dollars on branding or a website before you know exactly how your business is shaping up,” notes Holt.
“Money spent on the wrong people and at the wrong time will end your business before you get started. Spending money in the wrong places too early is the most expensive lesson I have ever learned. Every company has stages that it has to go through for it to build a strong foundation. Your business needs time to learn and grow before you know who and what it is. Be patient as you learn about yourself and the company from infancy. And treat your start-up as frugal as possible in those beginning stages.”
When you do spend money on your product, consider it a test, analyze the return on investment, and then recheck it. Listen to your customers. Once you’re clear about your product and who your customer is, then you’ve found the right time to spend money on improvements and expansion.
“As with marriage and children, your business will have its highs and lows, good and bad days, and times where you feel like you can’t do it anymore. However, the contrast is what makes it worth doing and having a like minded partner who complements your skill set is what makes it bearable,” reminds Holt. “Don’t push your baby to grow up too fast. Let it grow organically and observe the small changes. Enjoy each moment as it evolves into its own beautiful, unique and successful personality.