Every business startup requires a whole lot of management experience in various areas so as to achieve growth at a pace that keeps the organization on track. However, lack of proper management in the area of finance is among the critical reasons why business startups fail.
In addition, the dream of every business startup is to reach its peak at the shortest time available. So, instead of managing the rate at which the business is being funded, they prioritized business financing at all level even when the business is going bankrupt.
However, burn rate is the technical term used to depict the rate at which a businessman, organization or company losses money pending the time the profit realized cover up for the loses. Even though not all business has a high rate of return for investment, a good number of these organizations can make wise decisions on their rate of spending to save cost. For example, a business with a monthly gross burn rate of $50,000 will realize a profit of $10,000 monthly as a startup running on a lab of $120,000 has just three months to run out of cash. The burn rate is calculated as follow:
Net burn rate = Gross burn rate – monthly revenue.
The business is bound for failure no matter what. The business can only be successful if the business owner can mitigate his spending.
Reduce Your Startup Burn Rate to Avail Yourself More Time
Having enough time at your disposal as a business owner helps you develop quality products that customers can readily approve. It does not just happen overnight, your business needs time to grow. To do this, you must embark on techniques that reduce burn rate or you face bankruptcy and eventual closedown. These techniques are:
- Be frugal
If your startup business affords you the benefit of seeking a loan from banks or funding from investors. You had better realize that this opportunity could result in a snare when you lack proper financial management. You must cultivate the habit of careful spending. This would buy you more time to develop your products according to customers’ specifications, thereby improving customer acquisition, conversion rate and add lifetime value to your products.
- Aim at an MVP first
Every businessman often gets to the stage when they wish product could be developed to the final stage on the go. This is not a brilliant idea because these products would still need to be subjected to various factors. In fact, the products may fail, may be below the customers’ requirements and might not even suit the present economic situation. This is the reason why you should develop a minimum viable product (MVP) which possess the relevant key features that you intend to emphasize in your products. Developing an MVP offered you the benefit of building your products to the final stage at a very cheap cost. Your target audience quickly gets the message you intend to pass without wasting resources. This method of products development pushes you above other developers and attracts investors interest.
- Outsourcing software development
Embarking on software development outsourcing saves your organization from of time wastage as well as resources that could have been ventured elsewhere. This enables you to focus on the things that matter to your company’s growth. Moreover, in-house hiring can be so expensive and energy sapping. So it is the best advice you engage in outsourcing services as a startup to save you the cost of temporal infrastructure and part-time skill which you will later dispose upon project completion.
- Choose Coworking spaces over an office
Many successful businessmen today could give an account of the benefits in choosing a coworking space over the new office for business startups. Instead of diverting your financial resources to securing a new office as a startup, you can move to a coworking space with other businessmen whose business operations will not impede your organization growth. You can then relocate to your own permanent business location when you are capable of doing so. Coworking spaces offer you an opportunity to learn from other businessmen such as; how they execute a project and attract customers interest to products.
- Focus on “free” marketing channels
As a starter, you should focus on advertising your products and services through SEO and community building. This saves cost and attracts the audience over time, though not immediately. You can engage in running a blog so as to entice good contents for your products.
- Track your KPIs regularly
You must not forget to track your spending on every single purchase and outsourced services. This will help you determine whether to continue with the business and how likely you are to recover your losses.
- Forget about Premium tools
You must ensure you have the financial strength to subscribe to premium tools before you even think of it. You should embark on services that minimize the cost to optimize profit. There are various SaaS tools that still stand in place of premium tools for your products.
- Grow at a pace you can manage
Do not be tempted to seek business growth at a rate you cannot handle. It is better you maintain business growth at your own pace. Increased workforce amounts to increase salaries to be paid and space expansion. All of this requires spending, so be sure you are ready to finance these developments before you embark on it.