Six Tips for Startups from an investment manager
Matthew Singleton, Investment Director at Throgmorton Capital Management has spent most of his career advising his clients on how to manage their wealth and plan their financial futures. From time to time Matt advises clients on strategies that may involve investing in startups. He is also a passionate champion of startup businesses and has been involved in early-stage businesses himself. Here, he shares his financial and investment advice for any early-stage business looking to grow quickly without exposing themselves to unnecessary financial risks in his six top tips.
- Have a realistic business and cash flow plan that is based on the lower end of your own expectations. Having as much detail in these plans without them becoming over complexe is important, so others can understand. Reviewing your projections vs the actual on a monthly basis gives you clarity on how accurate and realistic your plan is. This will also give you the ability to make adjustments and to identify any unforeseen issues with your plan.
- Don’t offer heavy discounts on your product. This is a common error in my opinion where you see companies offering 30% or more off their product to achieve market share. I feel damages the brand you’re trying to build and makes customers sceptical. They begin to think “what does this product actually cost if they’re able to discount it so heavily?”. Instead set your products price at a competitive point to your competitors and ensure that you’re creating bottom line profit that will allow your business to grow organically. Potentially, you could offer a small discount for subscriptions that create recurring revenue.
- Expanding from my previous point of recurring revenue. If you’re able to create recurring revenue from your product then do it. You might think revenue is revenue however, transactional revenue means that each month you’re starting from zero whereas recurring revenue can be built up month on month and create long term compound growth of your business. Obviously, the nature of some businesses mean that recurring revenue is difficult to achieve.
- Don’t spend money on marketing until your business is really ready to expand. Too many start-ups think they need to market their business from day one and often end up spending significant sums of their initial capital on this when ultimately they weren’t ready for it. Test and refine your product and find out more about the general habits of your customers. Creating a solid foundation is critical before you start to scale the growth of your business.
- Give yourself time. Too often business owners to start-ups feel like every decision needs to be rushed and executed immediately. Take the time you need to feel comfortable with the decisions you’re making and look at things from a downside point of view. When making any business decisions the downside risk should always be looked at and you need to feel comfortable with that downside risk.
- You will make mistakes. When I mentioned downside risk in my previous point you should always think “is this decision potentially going to seriously damage my business if I get it wrong”. If the answer is yes then I’d say think long and hard before moving forward. There isn’t a single business owner that has grown a business from scratch that hasn’t made mistakes along the way so prepare yourself to make mistakes. The most important thing is to learn from your mistakes and ensure you never make the same mistake twice. You can also look at similar businesses to yours and see what mistakes they might have made and learn from them without ever making that mistake yourself.