Financing Growth and Fighting Failure with Jimmy Stephens

We’ve all heard the statistic, 90 percent of tech startups fail. However, understanding the reasons behind this high failure rate are key to avoiding a similar fate.

In 2017, the U.S Bank conducted a study looking at why businesses in the United States fail. According to the report, the top reasons include cash flow issues and poor product-market fit. The study also indicates that businesses often simply run out of cash, and don’t have the right team in place or the strategies necessary for financing growth. 

As the director of channel at Brex, a financial software and services company, Jimmy Stephens has seen the issues that cause startups to fail first hand. Stephens was among the first employees at Brex and was deeply involved in the early iterations of the company, from building out the sales motion and strategy, to helping grow the initial Brex customer success and relationship management team. 

“Early on in a company’s life cycle, it is important to focus on doing one thing really well rather than trying to do a few things okay,” Stephens says. 

On Feb. 22, 2022, Stephens hosted a webinar for Founders Network members where he provided strategies for financing growth and the funding options available to startups to help them avoid becoming another statistic. 

To learn more about strategies for financing growth and the funding options available to startups to help them avoid becoming another statistic , see if you qualify for membership and check out the webinar from February 22.

Situational analysis for strategic planning

According to the U.S. Bank report, 42 percent of businesses fail because there is no market need for the products or services they are providing. In order to avoid this, it’s vital for early-stage tech entrepreneurs to perform situational analysis for strategic planning. 

“Situational analysis should be focused on what the value proposition is for the customer,” says Stephens. “Without a clear understanding of your offering, you won’t be able to acquire new customers which is very important at an early stage.”

Stephens says Brex scaled their early customer base by dialing in on what no other bank or credit card company could offer: 1) No personal guarantees 2) High unsecured credit limits 3) Better technology and 4) Best in-class rewards. 

Calculating opportunity costs 

The U.S. bank report found that 29 percent of businesses fail because they run out of cash. That’s why it’s important for early-stage startups to calculate opportunity costs for each business decision.

“When looking at opportunity costs, focus time and energy on a key differentiator that will add value to your customers as they implement your product,” Stephens says. “Ask yourself, “Will this decision get us closer to what our end customer is looking for?”.

Stephens says a great example of this in the market today is Uber, a startup that was able to turn ridesharing into a quick and seamless service.

Solving cash flow

By far the number one cause of failure identified in the U.S. Bank report was cash flow, which is key to financing growth. According to the report, 82 percent of businesses that fail do so because of cash flow issues. However, according to Stephens, there are ample resources available to help startups avoid this.

“Early-stage startups have a few ways to preserve cash so this is what I always recommend: A dollar saved is a dollar earned,” Stephens says. “Extend your runway before the next raise to avoid too much dilution with alternative methods such as venture debt.”

Stephens says startups should try and get credits early on and work on getting credits with different software providers. He also recommends getting a good cash back card. 

Want to learn more about financing growth? In his webinar, Stephens covered:

• How early-stage tech entrepreneurs can perform situational analysis for strategic planning
• How to calculate opportunity costs for each business decision
• The difference between liquid and non-liquid assets
• Advice for solving cash flow issues
• Helpful tools that can help scale a startup team

To learn more about strategies for financing growth and the funding options available to startups to help them avoid becoming another statistic , see if you qualify for membership and check out the webinar from February 22.