balance sheet in chinese (Photo credit: Wikipedia)
The first reason is obvious and I am not sure if I have repeated it enough… Startups fail not because they have bad ideas or products or teams although those are some of the reasons but the single most important reason why a startup fails is because it does not have Customers. The second reason why a startup fails is because the team has not built the discipline to mind its business. What do I mean by minding ones business? well Yes, it is the boring stuff but I love it… I love it like I love Ice cream. There is nothing more important than having the discipline to maintain clean accounts of your startup. If you don’t build the discipline when you are small you will never build the discipline. So take the time to learn about how to maintain accounts. There is a difference between Accounting as a book keeping activity and Accounting used for Management decision making. I am a strong believer that you have to manage things and lead people. You have to take the time to manage your accounts. So what am I talking about? it is actually quite simple when you are in the initial phases of your startups development, create a discipline to make sure you record all your financial transactions i.e spending like paying salary, rent, internet access etc and receiving grant payments and investments. This discipline will help you in multiple ways one it will help you plan and budget, second it will allow you to understand your key financial metrics of Cash burn, sales etc. If you are not a finance person, take the time to understand what all the financial statements are about. Fred Wilson had detailed posts on every type of financial statement and what it is used for through his MBA Mondayssection, here are the subsection of the posts that I think are relevant:
Finance (Photo credit: Tax Credits)
- Accounting
- The Profit And Loss Statement
- The Balance Sheet
- Cash Flow
- Analyzing Financial Statements
- Key Business Metrics
- Booking vs Revenue vs Collection
Related articles
- Keys to Startup Success (alltopstartups.com)
- Five Common Mistakes Made by Startups (markevanstech.com)
- The Startup Journey or the Startup Exit (davidcummings.org)
- Startup Act 2.0 Announced (growthology.org)
This is so important – rule #1 of being a CEO is “never run out of cash.”
And don’t ever forget that it’s ok for startups to fail. When they do, have a wake for the companies, like I wrote about today at Have A Wake For Failed Startups – http://www.feld.com/wp/archives/2012/07/have-a-wake-for-failed-startups.html
Thank Brad. Never was part of a wake and I think it is a fantastic idea…will try to put it to use in Iceland. Me and my partners have a couple of companies that we are winding down as we speak, maybe I need a wake 🙂 but two very important points.
1. Never run out of cash
2. Have a wake for a failed startup
“the single most important reason why a startup fails is because it does not have Customers”
I agree! 🙂
It is the simplest of things that get you
Thanks Bala, I was just sitting down tonight to work on my second ever vsk (vat) report and was doing it with a chore mentality, but after reading your post I will finish it tonght with a better mood (and think of ice cream) 🙂
LoVe Pauline
Glad the post helped you.
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