The devil is in the detail when it comes to costs. If you don't know them, you cannot implement any business idea. They consist of the key activities, resources and partners. If you don't have an eye on it from day #1, you will walk straight into the trap.
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Costs can be a real party pooper. However, if you keep a realistic eye on them right from the start and assess them, then you also know better what you want to and can get involved with. Those who want to travel through the desert will also make sure that they carry enough liquid with them to survive this undertaking. If you want to get from A to B by car, make sure you have enough fuel in your tank. That sounds like such trivial wisdom… But that is not the case. And just as simple and logical as this, is the fact that I should estimate my costs as well as possible in advance. Otherwise, I will die of thirst in the desert or my car will stop. Sadly and interestingly, this is often not the case with costs. Many don't look into the water bottle or at the fuel gauge.
One of the big hurdles, which unfortunately many startups fail to overcome, are the costs and it is just not the obvious things. Growth is such a thing. Of course you need more knowledge and therefore more people and more computers and more desks and parking spaces etc etc etc... The one or the other you may not even be able to grasp at the beginning, because you simply have no experience. When we were in the early days with alugha GmbH, we were able to estimate the costs quite well. We also carefully built in some buffers and unforeseen expenses. This, in our case, made our investor happy with how careful we were in our estimates.
If you have an idea, sit down, really write down EVERYTHING you might think of. No matter how trivial it may seem at first… Taking out is faster than putting in. Talk to other founders where they had and still have their costs and where they misjudged themselves. Ask established entrepreneurs, where they have their big chunks of costs, what they did not consider… Find out about possible patent or license payments, software you need to buy or rent. We have 8 employees in our creative department, everyone needs a fast computer and everyone needs professional software. For the latter alone we spend about 500 Euros/month. And that is just one of our departments. I have often heard "the tax office is to blame! I had to pay so many taxes." Yes, the reality, however, is a bit different. Had you factually and emotion-free taken that into account for your costs right from the start, taxes would be no surprise. Nothing is basically easier to calculate than the taxes that accrue in a startup.
The better prepared you are for the (possible) costs, the better prepared you are overall and the faster you can make and plan decisions!
This article is written by our CEO, Bernd Korz. With his experience as an entrepreneur, he shares his vision about the lessons provided by Steve Blank. Join us every week for a new article on Steve Blank’s lectures.
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