Here are some of my rules for startups:
- Have a great product that everyone wants
- Enable huge margins by creating great value
- Reduce the production cost of your product to as close to zero as possible
- Sell lots of your product
- Make it easy for your customers to pay you
- If you don’t have a hit product, preserve your ability to make errors
Efficiency in a start up business has to do with your margin for error. The larger your margin for error, the better your chance of success. You want to use resources wisely so that you can make more errors. If you are a model of efficiency and save money on all the right things and don’t invest in making errors, it won’t matter.
When you find the right product or service, and the stars align, you’ll want to be able to put your foot on the gas. That takes money, it’s the moment when you test your belief in your product. It’s hiring at the right time, scaling infrastructure, buying advertising and providing adequate customer service. If your company has money, you maintain control. If you don’t, you’ll lose equity to investors in exchange for the funds to go from beta to launch.
And a final piece of advice, understand what the words ‘burn rate’ mean. Until your burn rate has crossed over the zero point, and your model is delivering on the margins in your plan, you’re on the clock. It works just like basketball, you miss every shot you don’t take. If you’re open and you have your shot, you’ve got to take it.