This is part of the Startup Mentor Series — featuring founders and successful entrepreneurs who share their advice in building successful businesses.
Statistics suggests that 92% of startups fail. What could be the reasons behind, you might ask.
Today we’ll dive deep into this matter with the help of serial entrepreneur, investor, mentor and the award-winning co-author of Small Business, Big Vision: Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right, Matthew Toren.
Matthew Toren, Entrepreneur, Mentor and YoungEntrepreneur.com Co-Founder
He shared that funding and hiring are the two biggest out-of-the-gate mistakes entrepreneurs make with their startups and having vast expertise in those areas, he shared some of his funding and hiring advice for startups:
Debunking the Funding Myth
“Many startups make the mistake of thinking they need to have a big chunk of capital, or investors, to get started on their business and by and large that simply isn’t true.” Toren, also one of the co-founders of the Kidpreneurs project, said there are plenty of self-funding options that entrepreneurs might want to explore. That includes working a “day job” while building your business outside of it and even structuring small private loans from a family member if you’re really in a cash crunch.
“The leaner you can keep things when you’re starting out, the better. It keeps you hustling and it gives you more focused lens of perspective on costs”, Toren continued.
Explore Outsourcing Rather than Hiring
When asked about what are the most common mistakes startups do, he shared that “some startups see hiring as a benchmark to success and I think that’s a mistake”.
He emphasized that while hiring will be necessary at certain points in startup growth cycle, just like having children, having employees is a lot more expensive than startups accurately account for usually.
“Employees need benefits, they require different taxes from your business, and they need equipment, and physical location space, and parking spots and benefit plans: the list of halo expenses go on and on.”
With all of the expenses in hiring staff for your business, Toren recommends outsourcing as much labor as possible to have capital you could be driving back into your business.
As an investor himself, he shared some sort of criteria investors specifically look for before they decide on investing.
We found out that he is a big-believer in the bottom-line.
“I want to see that the business is handling their operational cash flow and managing their burn rate effectively,” he added.
He also likes to get a sense of the entire ecosystem of a potential investment. Aside from all of these, here are a few more factors that Toren considers before investing on a business:
1. The company’s management team.
“These are the leaders at the helm of the startup, are they going to have the skills, stamina and technical acumen are what it takes to get this business to success?” he noted.
2. The team’s exit strategy.
“Have they planned one and how are they looking to execute on it? Will their team be able to get them to an exit?” he asked.
3. Their growth strategy and their relative market size.
As a big believer in what Peter Lynch says, he sticks to investing in what he knows. “I need to understand the business,” he emphasized.
4. The company’s valuation and how the deal structure itself measures up against others in the industry.
“Does this have the potential to be something big and what does the potential return on investment look like?” he noted.
Toren believes that each individual investor or venture capitalist is going to have their own unique set of must-haves when seeking funding; he highly recommends doing their homework ahead of time. This is to make sure they’re prepared to pitch and discuss in detail how their business will meet an investor’s criteria.
The Qualities of Most Successful Startups
Toren believes that the success of startups depends on great leaders who have these qualities: vision, tenacity and discipline.
“A startup needs a big lofty goal to go after or else why be there to begin with?”, he asked.
But beyond just a big vision, he also said that startup leaders are going to the generals that have the discipline and the tenacity to take themselves and the whole team to the finish line. “Great leaders keep pushing through the ambiguity and times of uncertainty to find a way forward. When you’re just starting out you need the vision to hold onto because that sets the course forward, but ultimately an end goal without the hustle to move towards it won’t amount to anything.” According to Matthew, there has to be the big idea, but the idea needs action.
Words from the Wise
Matthew Toren shared how his grandfather taught him what he needed to know about running a business.
“He taught my brother Adam and I young how to have fun selling and the value of working hard, working together and loving what you do. He was an incredible example to me and I feel really grateful I was raised an entrepreneur from a young age thanks to the example of my grandfather.” he said. That’s one of the biggest reasons behind the passion he and Adam have for teaching entrepreneurialism in kids.
Matthew proudly tells me that they both have instilled that love in their own kids, but they have seen a lack of that training in the schools and culture at large.
That became his inspiration to write a book and companion parent/teacher’s guide called, Kidpreneurs: Young Entrepreneurs with Big Ideas. The two brothers’ whole philosophy with entrepreneurialism and their kids is “it’s never too early.” “Entrepreneurialism teaches kids self-esteem, basic business skills, how to have ideas and problem solve, it’s a great set of life-long learning skills kids will benefit from whether they become entrepreneurs or not and something we feel really passionate about sharing with the world, just like our grandfather shared it with us,” he ended.
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