Insufficient financial runway

There are two funding rules of thumb that too few startup entrepreneurs are aware of. One: The timeframe you predict you’ll break even is normally double in reality. Two: The funding you predict you need will turn out to be four times more than what you thought. These rules have massive implications for any business’s ability to survive the initial months and years of its existence. Common forms of startup funding are personal savings and credit card facilities. This is followed by the three Fs – friends, fools and family – and finally, you try the banks and investors. We present a magnificent j-curve of our three-year forecast while trying to convince them to part with their money. Because it’s embarrassing to approach family and friends for funding, we feel compelled to present the lowest possible amount we need to borrow with the quickest possible payback period. And so, when our “sure thing” doesn’t pan out in the way our Excel spreadsheet said it would, we find it difficult to go back to our “financiers” to either delay repayment or ask for more money. A vicious cycle has begun that few small businesses will live through. Join Allon Raiz for episode 3 of his 20 lessons over 20 years podcast series where he talks about the correct way to finance a business.