3 Profit-Eroding Expenses That Startups Must Avoid


Expenses to Avoid - MM

The biggest mistake startup founders make in allocating their capital is not monitoring financial results. As a result, they end up engaging in activities that fail to enhance profitability. Here are three profit-eroding expenses startup founders should avoid.

  1. Sexy Markets

Too many founders target markets that are sexy in order to attract great publicity. But if that segment isn’t buying, the business is just throwing money down the drain.

Tip: Position your company in front of high-value customers, not just sexy customers. Find the most profitable markets, regardless of the flash and hoopla.

  1. Vanity Events
    Founders often fall into the trap of believing that they need to attend every industry event on the planet. Yet traveling usually requires sacrificing time and money.

Tip: Attend only events that have potential to result in revenue generation. A low-key event in your hometown may yield stronger financial returns than a posh soiree overseas. Do your homework and know before you go.

  1. Excessive Hiring
    Another mistake that many founders make is to try and solve problems by hiring a lot of high-priced talent. They wrongly believe that more bodies equates to more sales.

Tip: Only hire people who believe in your product or service and are willing to work on a primarily commission-basis to prove themselves. One highly motivated salesperson can produce the same results as a team of demotivated, salaried workers.

This post originally appeared on Atelier Advisors. Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator of Lean Finance for Startups and Finance Boot Camp for Entrepreneurs. All AlleyWatch readers are automatically eligible for a 50% discount on either of the courses using the preceding links.

Image credit: CC by Chris Potter

About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator and host of Finance for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

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