The four main mistakes made by companies when they take venture capital funds

Start-up financing has reached record levels. In 2019, to date, 34 new unicorns have ambaded more than $ 8.3 billion in fresh money. This badault on capital adds to the pressure that startups are already experiencing, allowing them to be caught off guard and make major mistakes that will affect the future of a business.

Until now, I've taken the alternative route and started my four companies to develop them organically. This has allowed me to avoid some of the common pitfalls that can occur when you contract external financing. Of course, this is not always a feasible path for everyone. I am not against funding and think there are many business models that benefit from it. But business leaders must be vigilant to avoid the following mistakes.

Mistake 1: Losing Creativity in Marketing and Beyond

Adversity forces creativity. Although I know that taking the stairs is better for me in the long run, I will always take an elevator if I have a choice, because it is human nature to take shortcuts. The same thing happens in organizations. With limited capital, entrepreneurs are forced to be creative and come up with new tactics to develop the business. Hiring a group of people and injecting money into a problem is not an option. Therefore, the focus should be on creative problem solving.

This is especially true when it comes to marketing and promoting the company. Without millions of dollars to devote to a major advertising campaign, companies must develop guerrilla marketing strategies to make a splash on a tight budget. This means that you need to focus on tactics that produce maximum impact at low cost rather than buying eyes.

Money can be a good substitute for creativity, but it's a short-term investment. This leads to rewarding bad expenses – those that produce immediate results rather than increasing the value of the business – because business executives fear that metrics will not generate real value.

Error 2: Losing the identity of your company

When there are millions in the bank and it's hard to value the company before the next step, it's easy for a company to lose its identity and to diversify too quickly, this which dilutes the value of the main product. Rather than investing in new business sectors, entrepreneurs must focus on making their core offering more profitable. Adding new services and new businesses is not a solution if the initial business does not generate money. It simply adds new potentially unprofitable activities to society.

An important point common to all successful companies is a clear sense of identity. When you think of a brand like Starbucks, you know exactly what you are going to get and you can describe the brand's feeling. If Starbucks suddenly offered a teletext service or opened steakhouses, it would not only confuse customers, but would do nothing to strengthen the original coffee sector.

Error 3: Postpone monetization

When startups are over funded, they often delay monetization. This, however, misses the point, because monetization is less about earning money to support the business, but more about whether customers are getting enough value from the product to be willing. to pay to obtain it. All companies must end up monetizing to go beyond the stage of financing. Thus, the sooner they can determine the value of their products and learn from monetization, the better.

The expectation of monetization also affects the perception of value by customers. If they got something for free, what would make them suddenly start paying for it? This adds challenges when a company must finally monetize and could be avoided if it is prioritized from the start. And this is not a problem for companies offering free products. It also affects suppliers offering services that are below market value because it leads to lower profitability and gives customers the feeling that the product is less valuable than what the company might provide. . Subsidizing a product or service with financing rather than revenue is not an effective long-term strategy.

Error 4: Quality loss in the hiring process

The largest expenditures for most companies are people, which facilitates the use of an influx of new capital to quickly increase the size of the workforce and lose sight of quality. Overfunding attempts a precipitous expansion, which may affect quality rather than quality. The number of employees hired by a company is not important; without the desired talent, he will not realize his goals and will not build the vision of the founder.

Rather than considering employees as a means to a goal, entrepreneurs must consider new employees as an integral part of the growth of the company and carefully select employees based on the potential value they will create.

There are many business models that rely on funding and find very high levels of success. But the entrepreneurs in charge of these businesses know that no amount of money can replace good ideas and management. No matter how much money a company has in the bank, it will be difficult to find success if it loses its interest and forgets to think of the value that each decision will create. It is for this reason that we must stop romancing high value companies if they do not focus on value creation.

Bhavin Turakhia is a serial entrepreneur who has created four corporations and a non-profit corporation, CodeChef, over the past 22 years. He co-founded Directi, which included the Reseller Club, Logicboxes and BigRock brands, for a $ 160 million deal in 2014. He is currently head of Radix, a registry of first-level extensions, Flock, a sequel to 39, productivity applications. and Zeta, a digital payment platform. He is convinced that we all have a moral obligation to produce an impact proportional to our potential.