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Five-minute money masterclass: essential investments for start-ups

Written by Adam Pescod on Tuesday, 05 May 2015. Posted in Financial management, Finance

Entrepreneurs often have no choice but to spend some serious money on their start-ups. But where should they be investing the most?

Five-minute money masterclass: essential investments for start-ups

We have all heard about the importance of cost-cutting when it comes to getting a company off the ground. If an entrepreneur can save some money without it having a detrimental impact on the business, it’s got to be worth it. However, there are certain things that an entrepreneur will have to splash come serious cash on to really get their enterprise moving in the right direction from the off

 Creating something that sells

Cutting corners on research and development isn’t really an option for an entrepreneur when they are looking to turn their big idea into a profit-making product. They need to prepare to spend big on getting to know their market and creating something that will give the competition a kick up the backside. “A business is only ever as good as the product or service it provides,” says Shalini Khemka, founder and CEO of E2Exchange, the members’ organisation for entrepreneurs. “To succeed, entrepreneurs must commit the majority of their initial budget to understanding their market and developing and delivering a product which will meet demand. 

Essentially, if your product isn’t up to scratch, you’ll never get off the starting block. “The marketing may be amazing but if the product is of poor quality, it won’t get any long-term traction,” says Sandip Sekhon, founder and CEO of GoGetFunding.com, the crowdfunding website. “If you’re creating a cool new aerial drone, you can’t add propellers that snap with the slightest bit of pressure.”

 Marketing that makes a difference

Arguably the biggest challenge for an entrepreneur is getting their product in front of potential customers and convincing them it’s better than the competition. While the advent of the digital age has opened up many new avenues through which to get yourself heard, a fair bit of money is required to achieve maximum reach. “It doesn’t matter how great your business offering is; if nobody knows why it is so great or how it will benefit them then it’s all in vain,” says Mallon. “Every business will have a budget for marketing and you will have no choice but to spend from day one.” 

And creating a killer brand goes hand-in-hand with this. “Once you’ve got your point of contact and people honed to a tee, advertising and brand awareness will help take you to market,” says Paul Brown, owner and managing director of Cars on Demand, the car leasing website. “You need to make sure you invest enough money in creating a brand that is modern, timeless and that people will recognise you for.”

 Attracting the very top talent

An entrepreneur with their eyes on rapid growth will need to assemble a team early on. While talent comes with a price tag, hiring the cream of the crop should end up being a worthwhile investment. “For technology companies, a huge chunk of their budget goes on development and technical skills,” says Elizabeth Varley, founder and CEO of TechHub, a community and workspace for tech entrepreneurs.

“If your technology is your product, skimping on development costs by hiring juniors rather than experienced engineers usually means it will cost you time. If your product isn’t released as quickly, you may not be able to start generating revenues as fast, which endangers the survival of your company.” 

And if salary is a sticking point, there are more affordable options for the entrepreneur. “If you can’t attract the best people from day one because of a low salary offering, then look outside the box and offer share incentives or big bonus opportunities,” says Sean Mallon, founder and CEO of Bizdaq, the online platform for buying and selling businesses. “Any business is only as good as its staff, and therefore hiring the best people from day one will stand you in very good stead.”

 A website that works on all platforms

Building a strong online presence is essential for any start-up – and a do-it-yourself website won’t always cut it at a time when Google is starting to reward companies whose websites are optimised for mobile devices. “This month Google algorithm changes mean those businesses that are not responsive will essentially be downgraded by Google in search, meaning their website is less findable by customers, which in turn will impact revenues,” says Michael Ward, founder of PayingTooMuch.com, the price comparison website.

“This demonstrates the importance of investing in your online shop window. That and the fact you have ten seconds to make a good impression with the first screen your customer visits. If your website doesn’t look great on a smartphone immediately, people will make a judgement on your business. If the process is clunky or if it’s hard work, you’ve lost them.”

  Somebody to crunch the numbers

It’s no surprise that an accountant is the first hire for many start-ups. With entrepreneurs fully focused on getting to market, it pays to have somebody on board to take care of the finances. “By freeing up your time away from more tedious tasks such as bookkeeping, you can focus on growth and strategy of your business which is ultimately where the success will come from,” says Mallon.

In most cases, it’s just a case of sticking to what you’re good at. “What I’ve learned from starting and growing two successful companies is how important it is to recognise the things you can’t do yourself, and investing appropriately there,” says Varley. “With TechHub, it meant accounting and bookkeeping – that stuff is absolutely not my bag and I’ve seen many companies end up in quite a mess when they haven’t addressed that early. Our finance team is an essential part of our business and takes away many headaches for our management and community teams.”   

About the Author

Adam Pescod

Adam Pescod

EB's former editor, Pescod was tasked with ensuring these hallowed pages are rich with excellent, engaging and error-free stories, all written with the entrepreneur in mind. Pescod previously plied his trade penning pieces about pubs and pints. He is also a sucker for alliteration. 

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