Common Startup Timing Mistakes and How to Avoid Them

"The right thing at the wrong time is the wrong thing."

- Josh Harris

Unless an early stage startup is profitable, it's constantly working against the clock. A typical seed round provides 1-2 years of runway, and that runway is always shrinking. There's a lot of advice on the web about what to do once you've raised money, but not when to do it. This is unfortunate, because poor timing can kill a company.

Some timing mistakes are obvious in retrospect, like planning 18 months of work for a 15-month runway, or doing things serially when they could be parallelized. Other mistakes are more subtle, like misaligning seasonal demand with a fundraising cycle (e.g. raising 2-3 months after a peak season is tough because most of your key metrics are dropping just as you're starting to approach investors).

This post will describe some common timing issues, as well as a framework for avoiding them.

Key questions

When making key decisions, founders should keep three questions in mind:

  1. How does this decision affect the magnitude of my costs and revenues?
  2. How does this decision affect the timing of my costs and revenues?
  3. How does this decision's effect on costs and revenues interact with my fundraising timeline?

#1 gets a lot of attention but #2 and #3 don't get enough.

In the perfect world, your costs are low and far in the future while your revenues are high and collected today. In the worst case, your revenues are collected over many years while your costs are high and upfront.

In the perfect world, your revenues go up before your fundraise and your costs are deferred or paid gradually. In the worst case, your costs go up before your fundraise and your revenues are deferred or collected gradually.

Common timing issues

Hiring and firing

Budgeting enough time

Timing costs and revenues

Planning Framework

Avoiding most of the timing mistakes above is surprisingly straightforward. Once you've designed a roadmap that includes key events and milestones, perform the following exercise:

  1. For each item on the roadmap, like a new engineering hire or a major marketing initiative, estimate how much implementation time the item will require, when the item will start contributing to costs, and when the item will start contributing to revenues.
  2. When possible, advance items that increase your revenue and postpone items that increase your costs.
  3. For items closer to the end of your runway, explicitly think about how associated costs and revenues might impact your fundraising plans.
  4. Sanity check your timeline against external factors: customer sales cycles, sector seasonality, regulatory requirements, etc.
  5. If you realize you don't have enough funding to get to the goals you want to reach, your options are to a) raise more money, b) change your goals, or c) change your tactics. If you can't make the timing work out, the risk of failure shoots up dramatically.

If you have timing mistakes or tips that you'd like to share, please let me know on Twitter and I will update this post accordingly.

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