How to Budget Your Startup

You know the deal:

1. Sally gets new idea.
2. Sally gets funding.
3. Sally spends 100% of $$ developing idea.
4. Sally runs out of cash.
5. Sally goes bankrupt.

Boo.

Where should you spend your startup cash?

Unless you've already built a magnificent-recurring-client base who's ready to buy from you tomorrow, do this: Focus a humongous chunk of your initial capital (and time!) into:

Sales!

At the end of the day, banks, investors, and potential prospects will bail you if you're generating heaps of customers -- but need more money to develop your products/offerings to serve those customers.

Why Sales

Here's why:

1. Sales generates cash.
2. Cash is your lifeblood. It gives your company working capital to live.
3. Without cash, you'll have no business.

The biggest destroyer of new businesses is a lack of cash. Why? Entrepreneurs unfortunately get the mistaken notion that:

1. "Marketing is easy."
2. "Sales is a piece of cake."
3. "That's why we look down on salespeople for a reason."

They think customers will eventually come knocking. Then, after finishing their products/storefronts/teams/etc., they can't "frickin' find customers AT ALL". So, they attribute their downfalls to "bad luck" -- instead of the bigger culprit: Their sales/marketing skills suck.

How Important is Sales?

Peep this:

1. Great sales without great products have built billion-dollar businesses (i.e. glance at the Fortune 500).
2. Shabby sales with great products have destroyed businesses (i.e. no one knew how great they were to begin with).

The Reality: You can have a bad product with great sales (i.e. repeatable and foreseeable customer transactions), and still establish your company for years to come. It's frickin' hard doing the vice-versa. How do you get out of that startup stage and establish your company? Hint: It's not through perfecting every inch of your product.

Sidebar: Sell First, Build Second

Sure, it's a controversial approach -- but hey, it's the best strategy we know to conserve cash for the smartest investments (i.e. spending resources of products you know for sure will give you a positive return).

So, How Much Should You Budget on Sales?

Pop-Quiz! Your sales budget should be:

• a) 10%
• b) 20%
• c) >55%

What'd be the smart answer?

• c) >55%!

Of course, every business is different, but we think budgeting at least more than half of your total budget on sales serves as a good rule of thumb. SalesForce.com, makers of CRM software, budgets about 70% of their total budget on sales. (They're pouring millions-by-@^^%-millions into their software, so imagine the magnitude of their sales budget.)

Handy Tip: How to Budget Your Sales

How do you spend your "sales" budget wisely? That's an article in itself, but here's the gist:

1. Don't put everything into one pot.
2. Test and experiment with different marketing channels to see what works best for your particular product(s) -- using very little cash for each to allow for more future experiments.
3. Pour more into those that succeed, and less into those that fail.

Rinse and repeat. (Marketing channel examples: direct marketing, advertisements, AdWords, calling prospects cold, flyers, networking, PR, speaking, hiring a sales consultant, yadda, yadda, yadda)

Running shabby ROI campaigns?

Don't fret:

1. Analyze how you can cut costs with your better-performing campaigns. (You usually can -- by a lot; eventually, you'll gradually find a way to optimize your ROIs for each channel.)
2. Simultaneously, experiment with other marketing channels as well.

Once you generate good globs of customers knocking on your doors, you'll free yourself to perfect your products to rock the world.

Sales = Muy Importante

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