“New entrepreneurs fail to accurately estimate costs and get advice,” says Martin Vápeník

Interview
Underestimation of costs, incorrect estimation of market size, and lack of flexibility in the financial plan. These are some of the fundamental mistakes that Martin Vápeník , the CFO of the startup incubator UP21 encounters with beginners. Having these elements properly set up from the start is crucial to the success of a project, and even maintaining its very existence may depend on them.

Frequent mistake: beginners want to create a lot for little money

One of the most common mistakes of startups is underestimating costs. This is not done intentionally - in the enthusiasm of your own business, it is very easy to assume that everything can be done with little money and relatively quickly. But the usual rule is: everything costs twice as much time and money than you first expect.

It is almost impossible for an inexperienced startupist to recognize this fundamental mistake. The only effective way to avoid it is to consult with a more experienced audience about their idea. When drawing the financial plan is up to only one person, it could lead to forgetting about certain areas that are not in their profession. But if you find more professionals from different fields to draw up a plan, you will get a much more realistic result. Asking a handful of experts and other startups about their personal experience has never hurt anyone.

Martin Vápeník, CFO of UP21

Neglecting the big picture leads to wasted money

The second common mistake of fresh startups is focusing on a part of the business plan and neglecting the big picture. The plan has to be built from above. In the beginning, it is necessary to determine the size of the market in which the product will operate and define the size of the segment that a startup can capture and acquire with the product.

If you don’t do this and you start to make plans in the opposite direction, you may target an irrelevant sample of companies or clients. Determining the big picture is not limiting - it’s just a sobering reminder about the borders that are not worth crossing. 

Flexibility is the key

I also often find that financial plans are not sufficiently connected. A development plan, a sales plan, a marketing plan should be separated - but to be successful, they have to go hand in hand and be easily combined with one another.

If you want to double the number of users, it is not enough to just increase your marketing budget.  ou also need to increase costs in other areas - such as customer support, sales, and development. The financial model is a living organism that reflects the happenings of all areas of company life.

High expectations, inaccurate outputs, and poor control

Sometimes a business plan lands on my desk and it assumes that the startup will reach more users than Slack at around one-fifth of the cost in five years, or that the startup will reach half the number of companies that are actually registered in Europe. Such calculations may seem confident and visionary on paper, but they completely ignore the real market. It’s always necessary to consider the actual size of the market, compare your project to other startups, and take into account all of the obstacles that may occur.

I also often witness many inaccurate calculations, poor control, and unsupported key inputs. These minor errors are the most common ones, but there are many more.

Principles to start with? Verify, plan, and consult

Let’s summarize the basic principles that should be followed. The main idea is to use as many information sources as possible, be it examples from history, market analysis, statistics of success from other startups and companies, and so on. Furthermore, it is necessary to base estimates on qualified estimates of experts, and experts in the field. And also to plan comprehensively - to include all relevant components, to conduct ongoing checks, and to follow the plan.

It is also important to plan several variations - the realistic, the pessimistic, and the optimistic. Only in this way can a startup be built from the ground up, so that it has a chance not only for initial success but above all so that it can grow into a stable and long-term project that fully utilizes its potential.

Martin Vápeník, CFO UP21. Pomáhá startupům s finančním a strategickým plánováním, cash flow a hodnocením investičních záměrů. Mimo to je také Investment Partnerem venture kapitálového fondu STAR*21.

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