3 ways startup founders can stretch their funding

When most people think of startups, the word that immediately comes to mind is “growth.” Founders constantly ask themselves how they can find investors, develop minimum viable products, capture market share, and ultimately grow revenue as quickly as possible. Startups have to be growth-oriented because they have so many obstacles to overcome in a relatively short period of time, from product development to the identification and cultivation of a customer base. And they often have limited resources to accomplish these goals.

We all know the stats: Most startups fail — and one of the main reasons is their inability to stretch capital. The vast majority of startups won’t see a huge influx of cash right out of the gate, so they have to know how to maximize their resources as much as possible and put themselves in a position to grow the business not just one or two years down the road, but even over five or 10 years.

But the truth is, startups don’t need massive budgets to be on solid financial footing. They need high-quality products and services that address specific needs, an effective marketing strategy, and a plan for how they’ll navigate the lean years. All of these priorities require discipline and patience, but the founders who are capable of operating on a shoestring budget without compromising their vision will secure robust growth over the long term. Here are three ways to make your funding stretch.

1. Maintain low overhead and focus on what’s mission critical.

According to decades of data collected by the Bureau of Labor Statistics, the average survival rate for companies falls rapidly within the first five years of their founding, and around half of all companies fold during this time. Companies clearly face a critical period in their first few years of existence; they don’t have a large financial cushion, they’re in the early stages of breaking into the market, and they’re often still in the process of refining their products and services.

The most immediate concern for companies at this stage is whether they’ll be able to keep the lights on for another day. This means doing everything possible to keep overhead down: living with parents or roommates for awhile, taking advantage of social media and other inexpensive marketing platforms, relying on remote work instead of paying for an office, and so on. For the first two years at my startup, my cofounder and I bounced between local libraries and Panera for free Wi-Fi. Your focus on cost-effectiveness should even extend to the development of your product — we were able to reduce costs by building our app internally and focusing on high-value features that users were demanding.

Last year, CB Insights compiled a list of the top 20 reasons startups fail, and a lack of cash ranked second. Even if you have the most innovative products and the most talented team in the industry, it won’t make a difference if you can’t pay your bills or make payroll. Fortunately for us, we didn’t have much overhead and were in a position where the two of us could forgo salaries for the first few years.

theCut allows barbers’ clients to schedule appointments via mobile app. (Courtesy photo)

2. Develop a data-driven marketing platform.

For many marketers, accountability is more important every day. There has never been a wider range of resources for the collection and analysis of data on the performance of campaigns and individual pieces of content, and thankfully for startup founders, these resources are increasingly accessible. This means founders can track key performance indicators such as conversion rates, return on ad spend, and cost per lead with a level of granularity that wouldn’t have been possible just a few years ago.

A significant majority of marketing professionals prioritize the ability to show ROI on all marketing investments, according to a survey by Demand Gen Report. This mirrors the findings of Gartner’s 2020 CMO Spend Survey, which reports that market analytics is a top marketing capability, while ROI is regarded as the most valuable metric.

There are many ways startups can use digital resources to determine the effectiveness of their marketing platforms, from attribution technology to built-in analytics provided by social media platforms (such as split testing, reach measurement, and various engagement metrics). No matter which strategies startups deploy, data-driven marketing is well worth the investment — the last thing founders want to do is spend their limited marketing budgets on content that isn’t producing actionable results. Tools like Branch for download attribution and the myriad of analytics that Facebook provides were key in helping us understand the effectiveness of our campaigns. We tested ads on a weekly basis and tweaked them as necessary. That way we could perfect that message and optimize its conversation rates before pouring fuel onto the fire.

3. Know exactly what your goals are.

The top reason why startups fail, according to the CB Insights study mentioned above, is the fact that their products and services fill “no market need.” This is a stark reminder that startups need to have a clear vision for what gap in the market they’re trying to fill and a concrete plan for how they’re going to do so. Early on we were introduced to the idea of “painkillers vs. vitamins.” The former being a must-have and the latter, a nice to have. When building products, painkillers illicit natural demand because you can’t live without them. Consumers will seek out solutions to pain points that are acute and persistent. That inherent demand will carry you much further than that in which you try to create.

When we founded our company, we knew there was a huge market for better barbershop experiences, and we were able to take advantage of this market through consistent engagement with barbers, consumers, and influencers on social media, which helped us build a significant network. We recognized that the existing apps in this space catered to women, so we carved out a niche category that appealed to investors.

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While every startup and industry is different, there are universal principles that will help any company achieve its goals with a modest budget: Limit overhead and focus on your core business strategy, create a marketing platform that delivers tangible results, identify a real problem consumers and clients face, and offer the best solution on the market.