Getting a startup off the ground can be fraught with obstacles, and often this involves taking financial losses. And while it may take the time to work out all of the kinks in a new business, a continually dwindling cash supply can lead to failure. Here are some tips on startup losses and how to deal with them.
Plan for a loss
It may seem counter intuitive to creating a successful startup, but it is important to plan for financial loss or “cash burn”, especially in the early phases of the business. Too often, startups fail to recognize that there is a high potential for losing money and this can cause many companies to go bottoms up. When implementing a strategy for your company, set a level of spending each month that you are comfortable in handling, and determine the duration in which your company will be able to sustain such losses before expenditures become problematic.
Raise more money
While there are many things to consider when trying to raise additional funds for your startup, especially if the initial investment phase was slow, the attempt could be worth it. Whether others will be willing to invest cash is going to depend heavily on the complications that are currently causing the losses. If the startup is not achieving success because of management issues or the product is not satisfying the demands of the consumers, then you may want to take a different route. However, if you are losing money, while at the same time seeing signs that the startup will be viable, such as increasing sales and peaking interest, then attaining additional investors is an option worth considering.
Start over
If your startup is experiencing losses and there is still money left to burn, then your best bet may be to reanalyze your strategy and starting over from the ground up. It does not make sense to keep moving forward if there are already cracks forming within your original plans and the foreseeable future does not present the likelihood of the situation changing. Instead, embrace the idea of bettering your products or services with a fresh start. One positive aspect of beginning again is that you will already have established an idea of how things are going to run, and most likely, you will have been exposed to the flaws that are present.
Embrace anxiety
Building a startup can be a stress-ridden endeavor, but it is imperative to embrace the anxiety that comes along with losing money. This anxiety will help to push you to keep moving forward and this could open the door for new opportunities. Rather than focusing on the negative aspects, formulate a plan on the various ways that you will be able to make the next attempt more successful and build on this idea. After all, it is more important to address issues by implementing changes, then to suffer as your startup slips into the red.
Sell it
If you are starting to see that your business may not be heading in the direction you wish it would, you may want to consider selling it to another company who can take over and make it more profitable. In situations like this, you can still take home some of the profits in the first year after the takeover. If you are in ecommerce, for example, you can sell your Amazon business, and continue to make money and use the profits to start your next idea. If you aren’t in ecommerce, you can still sell to a more profitable company, make money yourself, and with the lessons you have learned, start something new that is more solid and has more potential to thrive.
To summarize
In the world of startups, losses are not uncommon. However, it is how these losses are dealt with that separates the successes from the failures. During the initial phases of the startup, it is wise to note that there is a likelihood that the business will lose some money until it finds a proper footing, but know that this is only temporary. Furthermore, if the startup continues to burn cash, consider raising more money through additional investors. When all else fails, it may be necessary to regroup and start from the beginning. If you have a startup that is suffering losses, take this advice into consideration, and profits will eventually be realized.
