5 Ways You Can Waste Your Startup Funding and How to Avoid Them

Maybe you like many entrepreneurs have started your business with your own resources and perhaps with the support of your family and friends. But you also know that not all startups start making money from day one and maybe your own savings do not support the process of turning the idea into a profitable business, so you decide to participate in startup competitions, acceleration programs and other events where you can get public or private funding. But how to invest these funds?

Many entrepreneurs think of funding as an income and that's a mistake. This wrong way of thinking sometimes happens because opposed to a common loan which has to be returned in payments, this money is associated with the fulfillment of certain goals, equity or in some cases it is an investment without more commitment that growing your business.

This error sadly leads many entrepreneurs to use these funds in the wrong way and lose the real focus which is to turn a startup into a profitable and lasting business.

Here we share some apparent investments we have avoided at Toky with the funding we have received from our investors:

1. Start paying premium plans for all the tools you are using free until now

It is very common to use free tools in your startup and maybe you can think that is the natural way to pass to paid plans because now you have how to pay them, but this is not entirely correct. You have to bear in mind some things like the following:

  • Free plan limitation: You must analyze whether the conditions of the free plan will actually limit the benefit that the tool can provide to your business. If you can still operate for a while with this free plan there is no reason yet to change.
  • Level of knowledge about the tool: We recommend using the tools well enough in the free plan to take advantage of the paid version of the product.

At Toky for example, we use Mailchimp and Mixpanel in their free plan and without denying the utility of paid plans of both tools, we can still operate well with its actual limitations. We know it is a natural path to go to their paid plans as soon reach the appropriate level of use and reach the limits.

Start paying for a tool without using it well, it is a waste of money.

2. Corporate events to celebrate with the team

A party to celebrate the funding? It may not seem a bad idea and you might think it is good for the team, but you should think better about what will really make them happy. It is important to think of a good and attractive compensation plan that keeps key people with you and you should use this funding to ensure you'll have a good team to achieve your startup and investors goals.

The wellbeing of your team should be based on a good working environment and good compensation, not just in parties.

3. Unnecessary devices and perks for team members

A Macbook, Jawbone, Spotify accounts and many other elements are part of the perks that many startups offer to their team members, but really even when this can be attractive for some persons, this is not what will keep them working for you. But you must bear in mind that you must ensure that all team members have the resources needed for doing a great work.

A Macbook will never replace a bad work environment and it won't keep key people in your team.

4. Launch marketing campaigns across all social networks and search engines

Now that you have money, nobody will stop using it in marketing, anyway, you must sell, right?. This is true, but not without strategy; if you do not have a team member who knows well how to launch social media campaigns you can decide to do it with hired agencies or learn to do it with small experiments.

At Toky, we've tried promoting Facebook posts and Google Adwords using small amounts of money but we are always measuring the impact of this on our website traffic or lead generation.

Running SEM or SMM campaigns without a defined strategy is another way of wasting money.

5. Paying for advertising and articles in media

Before you start buying advertising or paying for news publications, it is important trying to get free press. You can start making your PR plan with simple steps that require no investment and while you do these small things, you learn to create opportunities to appear in the media. Also, if you have a good idea, you can trust in finding journalists or bloggers willing to share your story.

You must avoid paying for publications in portals or blogs not related to your market segment or those that doesn't have at least a good website traffic. There are many opportunists seeking startups in the need of press and with money available.

Don't forget that you have not only a financial but moral responsibility with your funding as it always represents the trust of your investors to your project and the best way to be thankful is using that money properly.

Finally, just we wanted to invite you to try our cloud telephony platform in www.toky.co and learn about the great features we have built through the work of our team, funding our investors and our customer's trust.

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