9 Startup Mistakes To Avoid After a Funding Round
Written by Amanda Bower | Published: November 16, 2022
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Closing out a funding round is incredibly exciting for startup founders and leaders. That’s because newly-funded startups suddenly have much more power than ever to work towards their goals. But funding rounds also mean more capital on the line; with this capital, leaders must avoid critical startup mistakes.
Startup mistakes can sometimes be relatively small, like a typo in the new email ad campaign or particularly uncomfortable office chairs. But other startup mistakes can be so big that they risk the health of the startup overall. These larger and more costly mistakes will likely happen after funding rounds.
So startups find themselves in a paradox. On the one hand, with more capital and power, founders and leaders can make decisions with bigger potential. But on the other, making mistakes can be more costly and more difficult to recover from.
With that in mind, here are 9 startup mistakes to avoid after a funding round.
Not Recruiting the Right Team
Startups can struggle for many reasons, including having the wrong people in play. Research tells us that 14% of startups fail because they don’t have the right team and that this is one of the top reasons why some startups go belly up.
Who you have on your team matters.
Established companies have enough size and influence to bear the brunt of a few employees who are not the right fit. They also have the resources to shuffle these employees out (if need be) quickly and to recruit and hire new team members. But startups, with their smaller teams and more sparse resources, can be rattled by the wrong employees in the wrong seats.
To avoid this mistake after a funding round, startup leaders should be sure that they’re thoughtful and methodical with the hiring process, even when funds are plentiful.
Spending in the Wrong Places
Have you heard the term “lifestyle inflation” before? It refers to the phenomenon that when a person earns more income, the cost of their lifestyle increases because they spend more on things that used to be occasional or luxurious.
Similarly, when it comes to startups with all-new funding, leaders must be careful that they’re still prudent with spending, even when the company bank account is full. Spending money in the wrong places is one of the startup mistakes that can quickly drain company finances and put the business in a dangerous cash flow situation.
How can leaders decide which are the “wrong places” to be aware of? Monthly financial reporting and forecasting can help ensure everyone has a good handle on their finances to make well-informed decisions.
Not Having a Proper Finance/Accounting Process
At the beginning of the life of a new startup, certain things might not seem mandatory because resources are limited. Founders might be the ones to clean out the fridge, for example.
But certain things should be in the hands of experts from Day 0, like a startup’s financial and accounting. Even if a startup is small in the beginning, rapid growth can suddenly mean that much larger financial and accounting matters are at stake.
Outsourced accounting services are an excellent alternative to hiring an internal team, providing a higher level of expertise at a lower overall cost to the company.
Avoiding Investor Relationships
Investors are vital to a startup’s financial health, and the need for investor relations comes with that. While it might seem tempting to forgo investor relations for things that seem more essential in the day-to-day, developing and maintaining connections are vital for keeping current investors engaged and happy and winning over new ones. That’s because when investors choose to put money in a new startup, they’re doing it based on a few sole factors, such as how leadership is perceived, how the business is presenting itself, and the state of the books (which is why good bookkeeping is also essential).
But this investor love story does not end once they’re on board. Investor relationships need to be cultivated, nurtured, and maintained overall for them to have faith and trust in a startup.
Not Amending the Original Business Plan
When it comes to startups, things are bound to change, and that includes the original business plan. Did you know that studies show that it takes founders 2-3x more than they expect to validate a business model?
That’s because it takes time for business models to play out and for founders to see precisely how their idea is performing in the real world. This means that the original business plan needs to be reviewed and likely amended periodically.
It’s important to remember that many startups fail because they are in the wrong market or running ineffective marketing campaigns. Risks like this can be mitigated if the business plan is revamped based on how the startup is performing.
Developing Too Many New Products/Services
Expansion is exciting, especially when there’s more capital after a funding round. It can be tempting to offer new products and/or services, especially if they’ve been in the pipeline for a while. But this is one of those situations that can turn into a costly startup mistake if it’s not properly executed.
There’s a difference between a startup expanding its offerings and overextending its resources. New products and services can be excellent for meeting customer needs and pain points, filling gaps, and growing as a company. But there can also be misfires when developing new products/services.
For example, a startup can spend too much developing new products that don’t perform well with customers. Another possibility is that more choices will turn customers away instead of attracting them (a documented phenomenon).
To ensure new products/services will truly benefit a startup, leaders can conduct excellent market research and consult their accounting team to ensure the business can support this expansion.
Not Defining Its Target Audience
A startup’s target audience is its bread and butter. These people not only use your product/service but also advocate for it and share it with their friends. For a startup, nailing its target audience is vital to survival, and an ill-defined target audience can be one of the most costly mistakes.
This can happen when the target audience is too broad.
Suppose “everyone” is a startup’s target audience. In that case, this is likely a problem because everything from the marketing strategy to the product itself is not directed at any one type of person. Instead of being a company for “everybody,” this is more likely to result in a product/service that speaks to fewer people.
Having a clearly defined target audience can help ensure that a startup is designing its strategies and products thoughtfully and solving a real pain point for people who will become loyal customers for life.
Not Redeveloping the Marketing Plan
Many aspects of a startup are crucial, from the product to the sales team closing the deals. But what about marketing?
A startup’s marketing plan is really its lifeblood and is vital for getting messages about the product/service to the consumer. And one that misses the mark can be costly, even deadly.
A startup’s marketing plan is its blueprint for how customers learn about its product/services. If it doesn’t speak to the target audience and isn’t converting into leads and sales, it needs to be redeveloped. A poor-performing marketing plan can’t be left on the back burner.
Not Bringing on a Fractional CFO
As we mentioned earlier, certain aspects of a startup might seem optional at first, including bringing on C-suite positions and other executives. These hires can be costly, and the state of a new startup simply might not call for them just yet.
But just because a growing startup doesn’t have the resources or structure to support C-suite hires doesn’t mean they have to come off the table, especially regarding accounting services.
A startup’s accounting and finances are vital to get right from the beginning. Taxes, payroll, accounting, and big-picture financial decisions can only happen when the right infrastructure is in place. And on the heels of emerging accounting technology trends, we’re seeing the rise of the fractional Chief Financial Officer or CFO.
A fractional CFO is a part-time, remote CFO who works with your company based on an agreed-upon fractional basis. Fractional CFOs aren’t just locked into one company and, instead, will work with several companies simultaneously.
There are many perks to fractional CFOs. They bring C-suite financial expertise to your startup at a rate that is much more affordable than that of a full-time CFO, without compromising on the quality of the services they provide. They also come with an exceptional amount of experience due to the nature of their position having involvement in many companies over a period of time.
After a Funding Round, Your Accounting and Bookkeeping Processes Need to Be Tightened Up
Funding is exciting because it puts startups in a position to make powerful new decisions. But with great power comes the great responsibility to ensure that accounting and bookkeeping processes are rock-solid.
That’s where we come in. We’re hiline, and we offer a wide array of outsourced accounting services to meet all of your startup’s needs.
Interested in learning how we can deliver next-level accounting and financial services for your startup? Check out our accounting services today!
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