Even the best entrepreneurs make money mistakes. Some of these errors are minor and easily corrected. However, some spending mistakes can cause significant harm to a business’s bottom line and make it much harder to get work done. A lack of capital can sink any tech business. Even one with a strong customer base, an excellent product and a great marketing strategy.
1. Flashy but Unnecessary Tools and Platforms
Certain kinds of tech can sound very appealing to developers and investors. However, like any tool, they’re usually good at solving a specific problem or set of problems. If your tech company isn’t trying to solve that kind of problem, they may be a flashy but ultimately unneeded boondoggle.
A highly sophisticated solution that does the same work as a simple solution is still a win — but it’s one that you could have achieved with a lot less spending.
Base your choice of tools and platforms on the problem you’re trying to solve. The number one reason for startup failure is a lack of market need, according to research from CB Insights. Often, this means designing products that either couldn’t find an audience or didn’t have a customer base big enough to justify the development costs.
It’s always better to start with a pain point and end up with a “blockchain-based solution” than to start with the tech you want to use and go searching for a problem.
It’s good to invest in new tools carefully and structure your spending decisions around a minimum viable product that you know has a potential target audience.
2. Branding Before You Know Your Audience
Similarly, it’s possible to get ahead of yourself when it comes to branding, your logo and your overall marketing strategy.
The way your company looks and talks about itself is almost always driven by the relationship you want to have with your customers and the kind of values you want to embody.
It’s often not that practical to start branding before you truly know your audience. While branding is one of the most powerful tools you have when it comes to building recognition and strong customer relationships, you need to know who you’re trying to reach first.
3. Replacement Equipment
When money is tight and you’re focused on getting your startup moving, it can be tempting to pay for cheaper equipment or skimp on safety measures. You may decide against pricier but more durable hardware, or choose not to invest in a maintenance strategy that can help extend the lifespan of your equipment.
However, you don’t want to skimp on equipment protection. While you may be able to save a little money up front, you’ll usually have to pay for it later in the form of costly repairs, expensive downtime or replacement components.
Some tech investments, like cooling systems and specialty enclosures, can help prevent sensitive electronics from overheating and sustaining damage. An effective preventive maintenance plan will cost more than doing nothing, but it will also help you see equipment failure coming — and, in many cases, help you avoid it altogether.
4. Premature Scaling
Planning for growth can be good, but some tech startups and businesses fall into the trap of spending like they’re already a major enterprise.
In a rush to lock down the best talent, some tech businesses overhire by bringing on new employees before they need to. Others overspend on office space or start investing in expensive solutions and tech before they really understand their market and audience.
Underinvesting in business resources can hurt when demand starts to pick up — but investing too much too soon can be just as harmful.
Where possible, you can find ways to scale without investing too much in permanent solutions — or hold off on spending until you know for certain what you will need.
5. Non-Trackable Marketing Spend
If you want your marketing to be successful and effective, you need marketing that’s measurable and specific. For every line item in your marketing budget, you want a clear measure of ROI that you can track.
This won’t always be easy, but it’s one of the best ways to get a rough idea of what kind of return your investment in ads is providing.
For example, for a social media ad campaign, you might track the cost per lead or acquisition — or calculate the customer lifetime value you may capture based on ad spending and follow-up sales.
If money isn’t too tight, you may be able to get away with taking a risk on less-measurable marketing efforts. In general, however, it’s good practice to have hard numbers to help you make sound marketing decisions.
6. Poor Bookkeeping
You don’t know where you’re wasting money if you’re not keeping tabs on your spending to begin with.
Poor bookkeeping doesn’t necessarily mean errors in accounting. For example, a business may be perfectly aware of how much money it’s bringing in versus how much money it’s spending — but they may neglect to break down expenses in advertising, R&D or sales.
Even if their overall marketing or sales efforts are a success, they may not be aware of hidden expenses that aren’t carrying their weight.
Without thorough recordkeeping, you can’t be sure which of your expenses are actually helping your company solve customer problems and drive sales. As with advertising, a combination of metrics and good financial records are the best way to know for certain that your business isn’t wasting money.
These Money Wasters Could Be Costing Your Business Big
Many tech businesses — regardless of niche — lose money to these unnecessary expenses and spending mistakes. Fortunately, with the right preparation and strategy, it’s easy to cut them out of your budget and free up money for more critical investments and tools for your company.