Reasons for Start Ups to “Burn Money” for Business Operations

The term "burn money" has been closely associated with start-ups or startups. Start-up owners will give vouchers to very large discounts for consumers. The naming "burn money" can also be said to be appropriate because the amount of funds used is of course very fantastic.

The next question is, do all start-ups have to “burn money” in running their operations? In addition, what is the right amount and until when should this strategy be followed? Check out the explanation below!

Get to know the Start Up Money Burn Strategy

The term burn money is an activity carried out by a new company or startup to spend its capital. The capital funds are used to finance all kinds of things in marketing. Burning money or also known as burn rate will actually only make cash flow get a red report card.

Reporting from CB Insight, as many as 29 percent of start-ups fail to carry out this strategy. The reason is none other than running out of capital. This capital is used for many things in marketing strategies. Startup companies most often use their capital to provide vouchers, discount prices, and spend on advertising.

On the other hand, the action of "burning money" from these start-up actors does promise potential profits. For example, when start-ups burn IDR 100,000, they have the potential to earn up to IDR 500,000. Unfortunately, most of these start-ups have difficulty recovering their lost capital.

Actually, this reason for running out of capital is not the main factor when a company starts burning its money. There are also many start-ups that fail because the products they produce are not accepted by the market. So, no matter how much you burn money, the sales generated will certainly never be worth it.

Benefits of Start Up Money Burning Strategy

Start-ups doing this money-burning action are also not without reason behind it. This strategy still has benefits that can be obtained. Here are a number of reasons startups need to burn money.

1. Accelerate company growth

Start ups certainly need to grow faster. The people in it need to do everything possible to accelerate, including the burn rate. This strategy will also build awareness from the public about this start-up company.

2. Survive in the industry

Companies cannot survive without profit. This profit can be obtained from the sale of the products owned. In order for people to buy your product, of course you have to make it attractive. The step of providing subsidies to customers with discounts and vouchers is certainly a way to stay in business.

3. Market acquisition strategy

Adding new customers is also the goal of burning money by start-ups. This strategy will make an item more interesting and bring up new stories in cyberspace. That way, the targeted market can also get bigger.

4. Steps to kill competitors

It is no longer a secret that discounts and cashback are the reason someone makes a transaction. The step of burning money to issue these promos is not only expanding the market. This method can also attract customers from competitors to switch to products that belong to your company. The more that switch, the sales from competitors will decrease.

5. Attract new investors

This money-burning strategy will certainly increase the value of a start-up company. This can be a good portfolio for new investors in the future. It is possible that you can get additional capital for business continuity.

How to Lower the Burn Rate of Start Up Money

As said earlier, burn rate can also be a risk for business failure. Therefore, try the steps below to reduce the potential for burning excessive money.

• Focus on the competition in your business. This means that you can reduce the services or products provided to reduce the amount of capital burned.
• Postpone spending wisely. You can start with expenses that are not immediately profitable. For example cutting the cost of lunch and dinner provided by the company.
• Eliminate unsold products. Forget diversity to make your company more attractive. Only sell products that can immediately provide benefits and are sought after by many people.
• Reduce monthly routine expenses. You can start moving to a cheaper location or rent a house as a day office. Also eliminate a number of facilities in the office that may be a monthly burden.

That's the information related to the money-burning strategy that is often done by start-ups. You can gain more knowledge by joining the program organized by Prasmul Eli. One of them is the Strategic Business Analysis Program which will provide training on how to deal with the often changing business climate. In addition, also gain knowledge on how to manage a business and implement a proper strategy in it.