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Startups-2: Stories and tips so that your company will live to tell the tale

Click here to see my previous article, Startup 1- Surviving the First Three Years.

Startups are great grounds for learning because they are fertile grounds for mistakes.  For the sake of learning from others’ mistakes and successes, I have a few tips for you:

  1. Be ready for at least six months of zero revenue:  A friend started a business.  Spent a fortune on the opening.   He thought the opening promotion will result in sales.  It did not.  He then started cutting corners to save money on operation.  As a result, the few customers he got were not happy.  So they did not come back.  , The business had to close within six months of opening.
  2. Be careful of the great customer: Are you familiar with this story? XYZ is a new IT company that landed the deal of a lifetime: A big customer gave them a big contract over a three-year period.  It was a dream come true, or so they thought.  They had to hire resources, rent a bigger space, and spend on a few other overhead expenses.  that was fine because it was all covered by the big customer’s bill.  This might seem great on the outside, but it can be a curse in disguise.  Mid way through the second year, there were changes in customer management, and they canceled their contract with XYZ.  There goes 90% of their revenues.  The company had to close soon after.
  3. Balancing strategic and tactical: This is one of the toughest challenges I have faced in every company I started.  There is a lot to do in a new company.  And there are not that many people to do it.  So, you will be torn between strategic work, which builds your company long term, and tactical work that ensures your company day-to-day survival.  Sometimes hiring help is not an option as you try to stay on a tight budget.  Make sure you give time to both.  no matter how tough this balancing act is.  If you can afford to get a junior to help you, do it.  I recommend industrial engineers.  They are great generalists.  And usually very task oriented.
  4. Cash is the oxygen of business: Collection is important. So having earned but not collected will not help you when it is time to pay the bills.  It is amazing how many businesses go bankrupt for lack of cash on hand.  Borrowing is not always an option and might take longer and be more complicated than most think.  Borrowing also puts the copmany at risk too early.
  5. …Yet, money is never the problem: Lack of money is always used as an excuse for poor performance, but in most cases it is just that; an excuse.  If you have a good product that your customers want and know about, money will not be a problem.  There are ways to get the money: new partners, loans, modification of the business model and cashflow, and many more can be done.  However, many rush to venture capital too soon.  There are many stories of people getting venture capital for a good idea, then waste the money.
  6. Folding is an option: Abdul owns a reputable construction company in America.  He was very successful, or so it seemed.  Until he once confided in me that he is losing money.  He goes into great projects, but he is not making money.  He believed this was temporary, so he continued, and continues under this losing setup.  Now, he told me he could not get out.  He was in debt for over three million dollars, and he had to continue working to keep serving the debt from the coming revenues.  Meanwhile he had to keep borrowing more.   I asked him why he does not stop and close the business.  He said he cannot.  He believed it is too late for that, but he regrets not doing that before his debt accumulated.  It is OK to be afraid to fold too soon.  It is also OK to be afraid to waste your time on a business that will never work.  These concerns are healthy as long as you look at them objectively, and not let your ego get too involved.
  7. Keep it simple: More than ever, the simplicity of your value proposition matters.  In how many words can you explain your value proposition? The shorter your value proposition the better. If you can explain to others why they should buy from you in a couple of minutes, that is good.  If you can do it in a couple of sentences that is better.  But the ultimate would be to explain it with a couple of words.
  8. Stay Objective: A friend once had a failing cafe.  I bought it from him in hope that i can do better.  But I never really answered the question of why I would do better.  The problem with the cafe, now I know, was the location.  There was no easy way I could change that.  And you guessed it: My cafe went the same way my friend’s cafe did.
  9. “Build it and they will come” is a very dangerous proposition:  Ideas look great on paper.  Unless they are tested, you cannot really tell if they will work in real life or not.  Starting big is dangerous.  I always worry about companies that start anew with a huge infrastructure.  Big store, hiring a big expensive support team, and building a big infrastructure, all under the assumption that it will work.  My advice is to always ask: What if it does not? Ask this question as if failure is inevitable.  And see if you can live with the consequences.  If you cannot, maybe you should consider “bootstrapping.” bootstrap business tests the market with a small setup, and builds up from there if the idea works.
  10. Think SMAC: Social, Mobility, Analytics, and Cloud that is.  These are the drivers for the future economy.  You business must directly apply at least one of these drivers, not in the operational mode, but in the revenue generation mode.

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