What funding mistakes should you avoid as an African entrepreneur? This post will show you five very common ones.
Having a plan and the discipline to carry it out are important components of starting and running a business. Building a startup isn’t always glamorous. However, it is a glorious process if you get it right.
Funding is a very important aspect of building and running a business. When raising money, entrepreneurs frequently make costly errors. If you’re trying to raise money, your financing errors can be keeping potential investors away.
Funding Mistakes African Entrepreneurs Should Avoid
Here are five mistakes you should avoid when starting a new business:
Making Wrong Financial Decisions
There is no going around this one. Money is one of the chief concerns of entrepreneurs, new or existing. Making and saving money will typically take precedence over everything else. This is because pre-launch cash flow is likely to be close to zero. Now the two most popular mindsets among new business owners are either: “I have to spend money to make money” or “I’ll spend as little as possible until I have some respectable cash flow.”
When taken to the extreme, both attitudes can lead to funding mistakes that are highly detrimental to a brand. Spend your startup money sensibly, but don’t hesitate to invest in high-caliber personnel and goods. In the long term, this will be good news for you.
Lack of a Solid Business Plan
The blueprint for your firm is a business plan. It’s analogous to building a house without a blueprint to launching a business without one. However, a business isn’t static, unlike a residence. We frequently assume that a business plan is a single document that is created once when you start out and never revised. But your business plan should evolve with your company. In actuality, a specific business may have several business plans if its goals alter.
A solid business plan aids in the definition of your target market, competitive advantage, ideal pricing tactics, and better positions your company to face future obstacles. A business strategy aids in capital acquisition and investor attraction.
Not Exploring Different Funding Options
Most entrepreneurs make this serious funding mistake at various stages of their business. You can’t speak to merely one or two potential investors otherwise, you might as well pack up shop and go home. Depending on the region your business operates and your chosen niche, you must explore as many funding options as possible.
For some context, there are several ways to finance your business idea, and these include:
- Self-funding: This entails using assets from your own savings, retirement accounts, or money from family and friends to start your business.
- Crowdfunding: This is the practice of raising money through websites like Kickstarter or Indiegogo in exchange for future access to the product.
- Loan to small business: You can apply for bank loans in your country to help kick off your business. More often than not, you would have to repay this with interest after a specific period of time.
- Angel or venture capital investors: Here, you are receiving money in accordance with predetermined terms in exchange for a company stake from a bigger brand or individual investor.
Contacting investors without doing your homework
This is one of the funding mistakes you must remain vigilant against. You must decide what kind of investor is best for you and your company in order to get the most out of the fundraising process. Angel and venture capitalists are the two main categories of investors.
On the one hand, a venture capital (VC) firm collects the funds of private, public, and corporate investors (known as limited partners) and strategically invests in businesses on their behalf.
On the other hand, individuals who choose to invest in businesses on their own rather than as a limited partner at a venture capital firm are known as angel investors. VC firms invest larger quantities of money than angel investors, who are recognized for taking a chance on fledgling businesses.
Any investor you approach should be thoroughly investigated to determine whether they look like a suitable fit. At the end of the day, every investor is unique. You need to make sure they’re someone you trust and want to work with because you’ll have to agree to their conditions, interact with them through your business’s successes and failures, and offer some equity in your firm.
Requesting too much or too little from your Investors
This is yet another funding mistake most new entrepreneurs make. Make every second count when speaking with prospective investors. You may be one of many business owners that approach them with offers, so be ready with a succinct elevator pitch that explains your idea, its merits, and why you require cash.
When chatting with them, explain the opportunity your idea takes advantage of, the size and demographics of your audience, and how your product stands out from competitors. Being honest about how much money you need and what it will allow you to accomplish is crucial. Don’t ask for a lot more funding than you need or too little.
What you ask for and your knowledge of its purpose really matter here. Why? Because investors want to know exactly how their money is going to be utilized before they commit so that they can reasonably predict the returns on their investment.
If you have the proper resources, you might be able to hire crucial personnel, conduct more hypothesis tests, or buy bulk supplies to create your product on a large scale. Consequently, be as specific as you can about how their support would help your company succeed.
Conclusion
Finally, you must put your customers first when developing your product and choosing your business model. The people who buy from you are the ones that pay your bills, not necessarily the goods themselves. What good is it to have the most innovative product or service in the world if no one will buy it?
Don’t let your infatuation with profit make you overlook what it takes to run a successful company. And that is having contented, devoted consumers or customers who will make long-term purchases. These customers must be satisfied in order for you to keep them coming back.
Now you don’t have to make these mistakes yourself in order to learn from them. Whatever your business model, remember that there were people before you. Learning from their mistakes is a terrific strategy to ensure the success of your own evolving business. So don’t take them for granted.
Kindly spend some time reading articles on SME360 to improve your business.