“High burn rate will kill Nokia-based startups in numbers.” says the Tough Love Angel.
This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. I suggest you also read my previous post about the culture as the poor culture is the root cause for high burn rate, but it is the high burn rate that eats your cash and kills you, not the culture itself.
High burn rate in a startup equals increased requirements for external funding and shortened runway to reach either profitability or critical milestones for the next funding round. I have seen catastrophic burn rates in many Nokia-based startups.
This problem starts with people who are used to pay a lot even for mediocre services as they have had the money in the budget. And people who also don’t have much clue on how to be frugal and run a lean startup. Other contributing factors are “easy” money from Nokia combined with easy public funding leverage from Tekes, and the share ignorance how detrimental high salaries and premature scaling can be for a startup and its culture.
Just to make sure everyone understands it. The key factors that cause high burn rate:
- Premature scaling. A seed stage startup is three to five persons, NOT 10 or 20. Hold your horses and don’t scale up until you have established the product/market fit.
- High salaries. In a pre-revenue startup, salaries should be low, preferably in the range between 2000-4000€/month for co-founders, with no relation whatsoever to previous salaries paid at Nokia.
My advice this time is dead simple.
Be lean, my friend!
I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.