Believe it or not, too much money can get in the way of success for an entrepreneur who has already “made it.”
If you have too much money, you won’t take as much care with your decisions–won’t treat each line item like it could make or break you. It is in this abundance that mistakes can be easily made. In fact, to make sure you give proper care to every decision, you may need to create the feeling of need–even if it’s an artificial construct.
Here’s how to trick yourself into thinking you’re cash-strapped:
Set Money Limits
Decide how much money you are willing to put towards your new venture and make it difficult to put in any additional funds. If you can, act as though you’re getting the money from an outside source, putting it all in at once, and establish milestones that must be met before you add anything more.
Set Time Limits
I give any new venture I establish a runway of six to nine months to understand if it has the chance to succeed. When considering these time limits, it’s important to also take into account the amount of effort you are spending towards this new venture–if it’s only part time, then your time horizon will be longer than if you (or others) are fully dedicated.
Create a Budget
Budgeting isn’t just for big companies. Determine what you’re going to spend to get your new venture up and running and track it from month to month. Use budgeting as a way to watch and forecast your cash flow, which is the very lifeblood of every new company and one of the top reasons companies don’t make it.
Create accountability around the dollars that are being spent in your new venture. This can be done by investing with someone else, which immediately creates this dynamic. You can also develop a system of checks and balances by using an outside accountant to manage the dollars or by assigning the day to day money management to a staff member. It’s too easy to tell yourself that you can spend a little more in a given area if you have the cash in hand–entrepreneurs at our core are risk takers.
Invest in Others
Creation of “scarcity” is one of the reasons to invest in others and not be an active member of the company. Often when I talk with entrepreneurs, they believe that early stage investors are not interested in rolling up their sleeves and jumping back into the fray of another company. While this may be true, it is also a tactic the investor is using to establish scarcity and accountability for others while keeping themselves from getting too emotionally involved.
Increase your next company’s potential for success by creating an environment of scarcity that forces you and your team members to carefully consider where you are spending every dollar. This type of situation will keep your investment in check and help you evaluate the new venture and decide its true potential for success.