When launching your business and starting with your first marketing campaigns, it is often very easy to overestimate the results that you are likely to get from your campaigns, and so it is extremely easy to overspend on unnecessary things. Not having the correct expectations from your marketing and sales efforts will also have a significant knock on affect, meaning that you will plan (and possibly expend valuable resources) on something that never comes to fruition, or perhaps take much longer than expected.
To illustrate this scenario more clearly, I would use an example from my own personal experience involving an emergency call center that I launched in early 2000. Before launching I developed all the things I thought necessary for me to handle a significant volume of calls, including a major software system for handling of calls by anyone with access to the system. I also set up an office (fortunately as part of my home office at the time) and then proceeded to purchase a high end phone system, which could make it possible to handle large volumes of calls, with only one or two operators at a time.
Fortunately I was able to develop the software system myself, with no cost to me but my own time, and the office was already there, however, the phone system required a fairly sizeable financial commitment, which I bravely took on in anticipation of receiving hundreds of calls a day. Of course when I launched I did so with fan fare and bravado, knowing that I was prepared for many calls in a single day.
As it turns out however, though I was able to secure a fair number of clients over a fairly short period of time, the emergencies were much fewer than I expected, and I ended up getting perhaps 1 or 2 calls per month per 100 clients. The phone system also tied me to my office 24 hours a day, making life rather difficult. Getting frustrated with these issues I realized that I could easily run the calls off a cellular phone and a laptop (at least for a start), and of course proceeded to do so. This also put the very expensive phone system in disuse, even though I still had to pay for it every month.
And though I made a tidy profit on the subscriptions every month, the profits could have been significantly higher if I had been just a little more cautious, and did my planning and research a little better. Also even though the phone system would have become more important as the business grew, it was an unnecessary burden on the business at launch time.
Essentially my complete over estimation of the success of my marketing and sales resulted in an overspend, without any real immediate benefit. And though I was fortunate that this was not a situation that put me in personal financial distress, it could have proven a major issue. Irrespective it ended up just being a waste.
The most important lesson that I learned from this experience is that though it is always essential to be properly prepared for your success, it is very important to realize that more often than not there is a cheaper and simpler solutions that will work just fine. It may not be pretty but it will work fine. Then once you have actually earned some money, and achieved certain measurable milestones (also known as key metrics), start spending money to meet the needs as they develop.
Focusing on this, it is very important to ask yourself what are the things that need to be achieved before you make certain key decisions on expenditure. Simply put, do not rent the office if you can work from home and meet a client at a local coffee shop. And as my wife always tells me “Please do not buy another phone system“. Fortunately in hindsight it is somewhat amusing, but at the time it was less than that for sure.
In conclusion I would suggest that when you make decisions on how and where to spend money, be sure that you define your decisions based on specific and measurable milestones. Do not make the mistake to live in a dream world and then spend yourself out of a business based on that.
I wish you all the best with your ventures and invite you to share you questions and comments here.