Featured on Entrepreneur’s website, the article “7 Costly Startup Traps Entrepreneurs Should Avoid,” written by contributor Peter Gasca discusses seven areas when starting a new business that can quickly become costly.
“In the past, aspiring entrepreneurs would turn to a mentor for help or simply set out on their own and learn as they went. These days, however, you can read startup books and find any number of tutorials online,” writes Gasca in the article. “With this rise in available resources, however, has come the inevitable business opportunists waiting to take advantage (and the money) of inexperienced entrepreneurs.”
In the article, Gasca offers seven ways new business owners can fall victim to unwanted and often avoidable costs:
- Co-founders. In many cases, businesses are often founded by more than just one person to help ensure all areas of the company are covered. When seeking a new business partner, make sure the person you chose has the same expectations as you do when it comes to getting the venture started. “For instance, because you most likely have a bootstrapped startup, you should beware any co-founder who has loftier expectations, such as a regular salary, expense reimbursements, commissions, an office, etc,” explains Gasca in the article. “A true co-founder will understand that to get a business off the ground requires sacrifice and grit.”
- Technical needs. Be prepared to pay for good technical talent if you need it for your company. “Entrepreneurs often set out to find tech talent with the hope of attracting someone to do the work for deferred payment or equity in the company,” says Gasca in the article. “The problem is that too many developers have gotten burned in these deals, and most tech talent understands the chances of success for most startups are extremely slim, so finding someone under these circumstances is increasingly difficult.”
- Service providers. Similar to tech professionals, most service providers such as attorneys, distributors, printers, accountants, etc., will not want to work for free. And, the level of service you receive is often reflected in the price you pay. “The most important services to pay for are those in which you have the least experience and understanding, asserts Gasca in the article. “If you understand nothing, then hit those books, subscribe to tutorials or find a very talented co-founder.”
- Reviewers. If paying someone to review your products and services, such as a blogger or reviewer, with his or her audience then this becomes advertising, not reviews. Honest reviews will come from actual customers. Be cautious when considering compensating bloggers and reviewers. They can be beneficial, however, and increase sales; so it is important to do your homework before partnering with this type of resource.
- Awards. Most industries feature an array of awards. It is important to remember that fees may be associated to be considered for an award as well as to use any copyrighted logos or images when promoting the award. “Knowing which awards carry the most influence and positive impact requires careful and thoughtful research,” states Gasca in the article. “While it is nice to have award logos plastered all over your website and products, it can get quite expensive and, if done in haste, can cause more harm than good.”
- Small business incubators. “Small-business incubators, or organizations that assist entrepreneurs with taking ideas from generation to creation, are sprouting up all over the globe,” says Gasca, adding that many will provide great resources to new businesses but most are not free and all have varying degrees of involvement and available resources. Some will require fees up front or have deferred compensation scales as the business develops. Others may even require a share of a business’ equity. Thoroughly research target organizations if considering an incubator.
- Investors. Raising money for a new business may be one of the most daunting steps for most entrepreneurs. “Because finding the right investment partners can be tough, there is no shortage of individuals and businesses who promote their ability to find them for you,” shares Gasca in the article. “The problem with most is that they require a retainer to do so, often thousands of dollars and with no guarantees of success.” Investment firms and individual investors should not require a fee to be considered for investment; if they do, then steer clear of them. To help find the best investors, invest your time. Do your research and attend networking events.
Read the entire article on how to avoid costly startup traps here.