The #1 mistake start-ups make

You may have heard of Maslow’s Hierarchy of Needs – the pyramid chart with five horizontal segments specifying human needs. At the bottom is shelter, food, and funding whilst at the top of the pyramid is self-actualisation. Devised in 1943 by Abraham Maslow, it is still very relevant today and is surprisingly informative about entrepreneurs and the one big mistake they tend to make.

Most discussions about Maslow start at the bottom of the pyramid and work their way up as that is the natural progression of human development. However, as we are dealing with entrepreneurs we need to break with convention and start at the top.

Self-actualisation is where you are free to focus on expressing yourself because you have addressed the needs in the lower levels. Maslow said, “What a man can be, he must be. For some it may be expressed in paintings, pictures, or inventions.” But for an entrepreneur self-actualisation is expressed as great new ideas that are talked about endlessly.

Second on the pyramid is self-esteem. Once the great new idea is formulated it is presented as an enhancement to the wellbeing of mankind. On a personal level the impending success of the great new idea, now formed into a start-up, will naturally fulfil the need for self-esteem by the entrepreneur in the form of adulation from peers and the wider community.

This could also be the dangerous crossover point between the confidence required to overcome the inevitable start-up challenges and the risks that are casually accepted in the pursuit of self-esteem. This charged situation can dull the natural instincts to measure the risk of failure that would wreak havoc on those, such as family, who depend on the entrepreneur’s success for their personal self-esteem.

The third segment is belonging. This is where great new ideas not only contribute to the community but the afterglow of the great new idea spreads to the recognition of the innovator as a person that the community is proud to accept as a natural leader. A new level of involvement in community affairs is now undertaken with the theme of giving back, potentially a dangerous ego driven distraction for any entrepreneur.

Second from the bottom is safety. Entrepreneurs, by nature don’t really take safety seriously. As surely as someone’s greatest strength is also their greatest weakness, entrepreneurs are prone to accept, and some suggest enjoy, the lack of safety engendered by taking risks that would be nightmarish for normal folks. It comes with the territory. Just what they are prepared to risk is now a considerable concern. Is it measured risk or self-indulgence covered up in hype? Either way the start-up is considered a safe bet by the entrepreneur

At the base of the pyramid are the foundation items – shelter, food, and funding. Entrepreneurs usually find a home and food but funding is a challenge. This is where the rubber hits the road. Every great new idea will only survive if it gets cashflow. Fund raising is all based on forecast sales that naturally require customers.

As complex as some funding arrangement may be, they all can be summarised in three words: cashflow, cashflow and cashflow. As surely as you don’t have a business without a customer, nor do you have a customer unless they provide cashflow. What is more, a startup is really a cash burner until it receives that wonderful moment of positive cashflow.

No matter how highly we regard the best new idea from the most self-actualised entrepreneur, the biggest mistake that any start-up can make is overlooking the foundation of all businesses: the need for cashflow.

Alan Manly, www.alanmanly.com.au, author of “The Unlikely Entrepreneur”

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