There are some lessons that I have learnt in my own entrepreneurial journey…. and as an entrepreneurship evangelist, have had the opportunity to observe many startups start up, and fail, including one of my earlier ventures.
Here are some observations:
Don’t underestimate the costs and time that you will require to meet your milestones – often entrepreneurs, enthused by their deep passion and conviction in the concept, expect things to happen sooner than it would, and they usually expect to achieve it with lesser resources and lower costs than it would actually require. Running out of cash, especially when things are moving in the right direction, is the single biggest horror that a startup or early stage company can face.
Split your entrepreneurial journey into three phases, each of which will require a different approach and capital:
- Proving the concept – developing the product roadmap, testing the value proposition, product, pricing, business model, marketing program, sales program, etc. I.e. testing and refining each aspect of the BUSINESS behind your product/solution.
Depending on your business, this could typically take anywhere between 6-18 months. In this period keep your costs low, focus on a few initial customers, launch in a limited geography and focus on getting the business dynamics right.
- Building the foundation for scale: This will involve refining your processes, developing the backend operations management technologies, building the right team, etc.
- Scaling up: Once all the above has been done, then you think of scaling up the venture. This is the stage when external capital can accelerate the pace of your growth. Often entrepreneurs plan for scaling up even without getting the first 2 points sorted, and that can be quite a challenge.
Plan also for the worst-case situation… not just the best case. Most entrepreneurs prepare business plan, which look at the most glorious of outcomes. While that is a possibility, it is prudent to think hard also about what aspects could go wrong and think of plan to mitigate those challenges. If the venture does well, enjoy the ride, be sharp and steer it towards success. However, if you have planned well for disasters, you will be able to manage the startup even during times of significant challenges.
Ensure that co-founders are aligned on the vision. Ensure that all founders are seeing the same big picture. Be aware of each other’s views on key decision points in the journey (e.g. what would you do if you were to get an offer to sell of for $ 10ms… what if the offer was $2mn?).
Talk to customers. Don’t plan on the basis of your enthusiasm and conviction. Test the concept with customers/consumers. Even before the product is ready, have conversations with potential customers/consumers to get their feedback and thoughts on what they would like to see in such a product or service.
Be very, very careful about whom you hire as your first employees. Make sure that they are in it with some level of conviction and passion for the concept. Pure commercially inclined employees will not have it in them to pull through the ups and downs, the course correction, and the challenges of the early stages of your journey.
Keep your costs low. Be frugal. Plan your cash flow and fund flow requirements well. Make sure you are adequately funded. Don’t assume that you will be able to raise the balance amount as you proceed along in your journey.
Don’t make your business plan dependent on external capital coming in: Often entrepreneurs prepare business plans which are dependent primarily on external capital for survival in the initial stage. And while that may be a possibility for some startups, most new businesses are unlikely to find investor interest for a variety of reasons.
In most cases, angel investors or VCs are unlikely to be interested in early-stage ventures where the concept, model, adoption and the execution capabilities are yet to be conclusively proven. Entrepreneurs often spend a lot of time and energy in pursuing investments and end up feeling dejected.
In my observation of reviewing 1,000s of companies on the Applyifi scorecard, over 500 just this year, many of these businesses DO NOT need the initial capital they seek to get to self-sustainability. They may need capital for accelerating the pace of growth, but most businesses CAN get to self-sustainability with little or no capital. It is prudent for entrepreneurs to focus on getting to self-sustainability with the resources currently available to them (and many businesses can go to self-sustainability).
Consider small-ticket co-investments by friends, family & acquaintances: Often startups need very little capital to get from the current stage to the next stage, possibly to self-sustainability too. If a venture needs say Rs.30 lacs, it may be hard to get it from angel investor groups or VCs. But it may be possible for them to raise this from 10 individuals putting in Rs.3 lacs each, and that too in 2-3 tranches of Rs.1 or 2 lacs. This opens up the pool of potential investors for your venture significantly. The format to raise this could be a convertible note, which has a certain interest component built into the terms in case the venture is not able to raise a funding round subsequently.
Wish you all the best in your entrepreneurial journey.
By Prajakt Raut - Founder Applyifi
Applyifi helps startups refine their business plans and investor pitch deck [www.applyifi.com].