Once you have secured funding for your startup, either by the means of bootstrapping, angel investors or venture capital investors, you will need to make smart decisions to get the most traction for your company’s money.

Lessons To Learn About Allocation Of Resources from Pets.com

If you were watching Superbowl XXXIV in 2000, you probably remember the final play, Mike Jones’ legendary tackle to Kevin Tyson, just a yard from the goal line. By a long shot, you might also remember the nameless Pets.com sock puppet, who made his television debut during the company’s Superbowl commercial.

The notorious sock puppet garnered a cult-like following, and went on to appear on Regis and Kathy Lee. He even had a Macy’s Thanksgiving Day Parade Float in his honor later in the year.

Poor allocation of resources killed Pets.com in just 2 years, ending the short-lived fame of the sock puppet mascot as well. It was not as though the pet supply company didn’t have a large pool of financial resources – it burned through a total of $300 million in investment capital.

An oversized advertising budget, paired with unsustainable discounts and free shipping promotions for customers and a lack of sufficient revenue brought Pets.com to a quick end.

So, lesson learned: it does not always matter how much money your business acquires in funding. The way the money is spent is much more critical to its success.

How To Allocate Resources For A Healthy Startup

Whether you are starting with a $100,000 from investors or $100 from your aunt Margaret’s lipstick-stamped birthday card, the fundamentals of startup resource allocation are the same.

  • Identify core objectives. Go over your strategic plan, making alterations if your priorities have changed.
  • Invest in market research. Set aside some cash to stay up-to-date on what your target audience really wants.
  • Plan operations and projects. Use your operational plan to set budgets for upcoming projects and ventures.
  • Create department budgets. A generous sales budget is essential to helping your business grow, especially in the early stages.
  • Don’t splurge on your product. Keep your costs of production as low as possible without sacrificing the quality of your product. Don’t worry about fancy packaging or waterproof business cards.
  • Plan for a rainy day. If you fall behind revenue goals or need to change your plans, you will need to have room for flexibility.
  • Hire slowly. Talent doesn’t come cheaply, but fast hiring could burn out your funds more quickly than expected, especially if it takes more working hours than anticipated to get your business running.
  • Be flexible. As soon as you realize a project or investment, or even a client is not working out, scrap it. Don’t worry about sunk costs, because these timewasters can cost much more in wasted energy and money if you let them drag on.

Make sure to account for three kinds of business costs: fixed costs, such as wages and space rental, variable costs, such as raw materials, and one-time costs such as computers and equipment. You can integrate your budget into your operational plan for simplicity. Refer to it often to measure your business’ performance and evaluate your progress throughout the year.