The quickest ways to lose money at a startup

Whether you already have funding or are still looking for that initial interest from an investor, building out revenue streams has got to be on the top of your wish list.

Once the cash starts rolling in, you’ll probably start seeing a pattern before you even look at the reports on QuickBooks. Like crashing waves hitting the shoreline, the money comes into your account and then suddenly rushes back out.

Most marketing and sales experts teach you to focus on how to grow your revenue and scale your business. Fewer of them point to the stupid little things that we waste money on, making profitability that much harder to achieve.

First, a confession: I’ve wasted plenty of money on both the personal and business sides of the ledger. In fact, my bookkeeper still warns me on occasion that I’m spending money like it’s burning a hole in my pocket.

I take pride in being generous, since it’s part of who I am. But it’s the overdoing that I’m learning to cut back on.

For instance, when I was really feeling flush, I once had a New England-style stone fence built around a property we owned. While it was aesthetically pleasing, in hindsight there’s no way I can justify the cost on any level, certainly not financially, nor even from an enjoyment point of view.

Similarly in business, we don’t learn from the good decisions, only from the bad calls.

So rather than being concerned that you might be overpaying a few employees, or even giving out too many perks, from health insurance to free food, I argue that those kind of overages are good bang for the buck as they help build a loyal workforce and boost morale.

Instead, here a half-dozen line items that are less obvious, less redeeming, and can sneak up on your startup. They’re usually disguised as “one-time costs,” can easily turn into an expensive habit, and are a quick and easy way to bloat your accounts payable.

Latest equipment. Beware of expensive high-tech white boards, the latest leather swivel chairs, or the most updated Adobe software. When I started my first business, one of the first checks I wrote was for 10k—transferred from a meager personal savings account—to buy office furniture. My office furniture distributor was a friend, who then hired my firm on a monthly retainer and made many business introductions. It turned out to be a great investment, based on genuine reciprocity, and he’s still a close friend. Yet, that was the exception that proves the rule. In most cases, the newest equipment and furniture can wait.

Long-term office rentals. After spending gobs of rent over the years for offices in midtown Manhattan, including tens of thousands of dollars to get out of long-term leases, I took a different route six years back. These were still pre-WeWork days, and my wife had to convince me that it was okay to take a non-conventional space closer to home. I fell for the first spot we saw: a loft on the top floor of a brownstone on the Upper West side with an outdoor deck. Flexibility on space, and just saying no to long-term real estate commitments can help you save big time.

Overpriced consultants. They give you the impression that they’ve been there and done that, have the answers, and can be integral to your success. While it’s true in isolated cases, in most scenarios I’ve seen, high-priced and even low-priced, consultants too often over-promise, under-deliver, and suck your hard-earned dollars. Outsource the bookkeeper, payroll, designers, and legal staff for as long as you can, but hiring a messianic consultant to practice magic and transform your business is a surefire way to disappointment.

Cool advertising. When you have the cash, and need to market, paid media is such an alluring quick fix. While you also need to be wary of high-priced web shops, it’s even easier to fall in love with a creative campaign that instantly puts your company in the big lights. I still remember the gobs of money Internet 1.0 startups spent in advertising. In the end, most of the companies and publications—including fat editions of Industry Standard and Red Herring—shrunk and then folded. Advertising can work wonders when you’re big enough to pay for it, but can eat your lunch when you’re still small.

Litigation. Sooner rather than later, a customer will stiff you, and an ex-employee or vendor will file a frivolous lawsuit. As an entrepreneur, your natural inclination will be to fight back. I’m not saying not to (I’ve taken this route a couple times), but in most cases, making it go away by walking away is the best thing for you to do for your balance sheet and peace of mind.

Off-site events. It’s tempting to change environment, eliminate daily distraction, and treat your team to an out-of-office experience for a day or two. Before you book that out of town resort, consider instead the dive bar down the block for some after-work burgers and beers.

You’ll usually need to lose your own money to learn these lessons (and additional ones). Just don’t say you were never warned.

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