Startup Pro Tip: Spend Money Wisely

One of the most common mistakes I see among first-time entrepreneurs and founders is starting to spend money too soon. It’s easy to get carried away with an idea and jump into hiring engineers, designers, creating a website, and more, but the trouble with spending money is that it compounds. You never spend less money, you only start to spend more.

Rather than spending money immediately, you would be better served to think harder about your idea. Take a contrarian view, challenge your assumptions, and think about your distribution model, revenue model, integrations, and marketplace. Really think about what the problem will look like in three years, flesh out your understanding, and write everything down. Only when you have a clear vision and see the journey, should you start to spend your hard-earned dollars.

It’s understandable that visualization, iteration, and mock-ups can help entrepreneurs flesh out their ideas. However, entrepreneurs must keep in mind that every dollar spent at the early-stage of a startup is critical, and a penny saved is a penny earned. In the words of billionaire entrepreneur Mark Cuban, “Sweat equity is the best startup capital.” Take the time to develop your vision before spending any money, and you’ll be much better positioned for success in the long run.

In fact, many successful startups like Airbnb and Dropbox focused on product development and validating their concept before they started to spend money on marketing or growth. They were able to prove the viability of their idea and attract the interest of investors who would provide the necessary capital for growth.