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This article was published on December 19, 2013

How not to go broke building your startup

How not to go broke building your startup
Pablo Ruiz
Story by

Pablo Ruiz

Pablo Ruiz is the Co-Founder of InfinixSoft, a Miami-based company that develops apps across iOS, Android and the web. Through his company Pablo Ruiz is the Co-Founder of InfinixSoft, a Miami-based company that develops apps across iOS, Android and the web. Through his company and blog, Pablo helps entrepreneurs design, build, grow, launch, manage & support their startups.

Pablo Ruiz is the co-Founder of InfinixSoft, a Miami-based company that develops apps across iOS, Android and the Web.

Building a startup takes a lot of time and money, that’s no big news. Once you get started, it’s like getting on a non-stop train (or even a rollercoaster) where you have to keep moving forward and there’s no time to pause or get off. Once you have committed yourself to your idea, assuming you are passionate about it, you will dedicate all your time, energy and money to it.

This is great! There is not better thing in the world than working on your own project from point zero and turn it into an empire. We all love those success stories that inspire us to build our own business.

Once we become an entrepreneur, there’s no turning back. I can’t picture myself going back to the corporate world, working for others just for the pay in a faceless corporation.

That’s why I would do whatever I need to keep my startup going and there’s nothing that I wouldn’t sacrifice. Even now, I’m writing this in the middle of the night of a Friday instead of going out. Why? Because It’s the passion I feel about what I do, and I am pretty sure it’s how you feel about your own project as well!

As entrepreneurs we just keep pushing – that can be our downfall

One of the most common scenarios in the startup life is the mentality to keep pushing even when things are not going as expected. You’ll pour more money, more time, more resources, even more money until things work out.

This is a story I hear a lot: A first time entrepreneur invested two months and $10k in her idea, and it’s not working. So she decides they need to add 10 extra features to make changes and get the much needed revenue. Two months and $15k later, she releases a new version with said features and things aren’t getting better.

Now that she’s four months into her project and $25k down, it’s time to look for friends’ and family’s money, right? Months later, once again things aren’t better, now she is in debt with her friends. She can’t even look at their faces in parties, her spouse is mad at her because she hasn’t been out of her house for months, she haven’t paid them attention because she was working hard on making this work, and debts pile up.

Why not spend three extra months looking for investors? I’m going to stop there hoping you get the idea, as things can go even worse than that! Sometimes, money is not the answer. Rather, it can destroy families, end relationships, cause lifetime friends to fight. Founders are selling even their beds to pay for “just one more push that will make my idea succeed” – all of this because they didn’t know when or how to stop.

Know your limits beforehand

Even when your new business isn’t going as you expected, if you didn’t set a limit beforehand, it’s very likely you will keep working on it. It’s in the entrepreneurs nature! You love your idea, it’s your baby and you won’t let it die without a fight.

Even though this attitude is really commendable, it’s also really dangerous! Not only are you spending all the time you could be using to earn money, but you are also sacrificing a lot of other things. Each day your business isn’t working, you suffer, you get annoyed and your self-confidence goes down, which can also hurt your relationship with friends and family.

So, how can you avoid this problem?

The most important advice to avoid going broke is – and this might sound pretty obvious – not to spend more than you have. Simple, huh?

From where I come, this is actually quite easy. Since it’s almost impossible to get a loan or credit to buy expensive stuff, if you don’t have the money to pay the full price, you just can’t get it! You want a new house, a boat, a car, a business? Work hard, save the money and come back when you can pay for it!

Here in the US things are different. When we are talking about startups, most entrepreneurs think first about borrowing money and then about building something.

Leave asking for money for later, focus on building something people will use and investors will come. And as a bonus, if you already have something that’s working, investors will come under YOUR terms and not theirs!

Setting limits and goals

Before you even start thinking about your product strategy, how you are going to build it, what you are going to do when you have 100,000 monthly users and all the exciting stuff, set your limits.

You should do this even before you write anything about your idea. Set your limits first.

Let’s say you came up with a great concept for a mobile app. You have been fiddling with this idea in your mind for a few months and you’ve decided to give it a try. Stop right there and before you even sit down to write about it, you should be able to honestly answer these questions:

  • How much money are you willing to invest to build your idea?
  • How long are you willing to work on this idea before it becomes successful?

Remember to do this before anything else. Once you’ve done some mockups or written a business plan full of spreadsheets with the millions in revenue you’ll get in five years, it’s too late.

The idea here is to keep in mind how much you can afford to invest in your idea and stay within those limits.

Always have these two numbers in mind, these are your main limits, and you can’t spend beyond that without making a bigger sacrifice: Your total money and your total time. If you run out of any of those before you have a successful business, just quit and work on something else, this will prevent you from going broke.

Once you know how much money and time you are willing to spend, you can easily break that into several actionable points with goals and possible outcomes. Having all this though out is very important.

Let me give you an example: Let’s say you decide to start by building a landing page to validate the concept and see if people are really interested in using your product. Before doing anything, you first have to define a measurable goal. How many sign ups/subscriptions/emails do you need to prove you have validated your hypothesis?

The exact number is something that varies from business to business, but the idea here is to have a goal. Then, there are some questions you should always ask yourself regarding that specific goal, that sets your limits:

  • How much money are you willing to spend to test that out?
  • How long are you willing to wait to get results?

Again, this is up to you to set and it will depend on your specific business, personal goals and time you can dedicate to your project.

Now that you know that, for example, with your landing page you expect to attract 1,000 users by spending $3,000 and two months. What’s left to define is what you are going to do when you reach that goal (or when you don’t).

If you reach that goal, are you going to spend your remaining money to add more features? Are you going to further promote the site to reach more potential users? And what are you going to do if it doesn’t work? Is it time to quit? Or should you spend the money you set apart to do something about it?

Write down different possible scenarios that adapt to your main limits. The purpose of all this is for you to know when to stop, but also how to keep working at it when you do meet your goals.

Many times getting some mild success is even more daunting than failing and you have to be prepared for that as well so you don’t get distracted.

Go ahead and do the same for the rest of your ideas. What’s the goal of your MVP? How many users should you get in the first month (or buys or whatever you are measuring) to consider it a success?

By doing some planning, setting limits and goals and thinking about the different outcomes you can be prepared for everything. Whether it’s running out of money or unexpectedly surpassing even your own expectations!

I’d like to hear some of the goals you’ve set and what you are planning to do when you meet them or not. If you have some success or failure stories, please feel free to share them with us in the comments section below.

Image credit: MichaelJayBerlin/Shutterstock

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