Any entrepreneur will tell you, the first few years of setting up a business is the most difficult, and how well you manage this initial phase, can decide your eventual success.
Taking your business to the first million dollar turnover, or first 100 clients or 50 employees, or simply achieving break even; whatever be your milestone, becomes the most critical phase of any business.
As we complete 3 years in our entrepreneurial journey, (we started off with a measly $10,000 investment and a whole lot of passion + determination), to scaling up the business to a modest USD 2 mn dollars in revenue, we now embark on phase 2 of our journey.
We thought it would be nice to take a pause and reflect back on the journey and share the top 5 learning’s which helped us reach where we are, and also mistakes along the way. This blog is in the form of a letter, written to those entrepreneurs, who are about to set up their new business.
If you, eventually decide to plunge into entrepreneurship, congratulations.
You always have done something which only a few, dream of. You should definitely feel special about this.
However, this is just the first step. There is a long and exciting journey ahead of you. This journey would bring you pain and happiness; it won’t be as easy or hard as you think it would be. But one thing is for sure, if entrepreneurship is what you always wanted to do, and if you are prepared to generate tons of willpower, you will enjoy this journey every bit. And success, you shall definitely find.
The first phase of the journey would be most difficult. As you are treading uncharted territories, you will come across lot of new experiences. Most important would be to learn how to handle them, and not let it derail you.
We have shared the top 5 things you need to remember which will help you survive the first few years and if you can do well, you will only thrive, but manage to create a scalable business. Have not dealt too much on the techniques of each (maybe separate post later on) but currently these are on a macro level.
5 Things to Keep in Mind When you Start-up
Focus on Cost
It doesn’t matter if you are funded or not; it’s a sin not to focus on your cost. Whether you are in a product or service business, you need to keep a tab at all times on how much you are spending vis a vis your revenues. Of all the problems, I have personally witnessed which led to businesses being shut down during the initial years, it has on some level to do with cost not being in control.
If you have a focus on cost right from the beginning, you will manage it better. You should know your break-even point, operating expenses, cost of products, selling expenses, overheads on weekly basis. This will give you an idea of how much money you are actually making. If you realize you’re cost are too much, you can at least take corrective actions. But ignorance here, can lead to severe consequences
Why should someone buy from you? Why should they hire your services? You may be in commodity business, but you still need to answer this question, and if price is the answer, you are doomed from start. Since yours is not an already established business, you have an advantage to study the market and understand customer and competition offering. You need to position your product and services in a way which consumers could appreciate how you are different from others and the value it brings to them should be crystal clear. If you offer a me too product, you won’t survive for long.
The lifeline of every start up depends on the steady stream of customer inquiries. And turning inquiries into revenues would be the next step. You need to quickly find a way of generating those leads, which will help you get more orders and in turn improve your revenues. If you are in B2B industry, participation in trade shows, B2B listing sites, google ad words, mailers etc would help you to generate leads If you run a website, then ensuring more overall views, unique views, engagement and leads is the way to go. Whatever business you are in, you need to find a way to generate steady leads, and then work on converting them. This is essential for business to survive.
Don’t take business risk which threatens your very existence
Ok, this is a controversial one, and I would be happy to receive contradictory views about the same. While I know, many have made it big by taking risk in business which could have gone either ways, I for one believe that a risk which is too big, and can threaten your very existence, if goes wrong is simply not worth taking. We received a 500K order during our early days (our investment was 10k) . However, we simply didn’t have that kind of backup funds and even if we borrowed, it could have wiped-out net worth had it gone wrong, so we backed out. I think we should all take calculated risk. Yes sometimes you need to take the leap of faith, but provided you have some margin, to stand up, if you fell flat on the project.
Constantly expand your offering. Hedge the risk. Diversify in related business
Three years may be too early to diversify, but what I am referring to is start looking at additional revenue streams from your core business. This will help in two ways, if revenues from your existing business slows down you have created another revenue stream which will act as a cushion, and who knows if you plan well, it can contribute in a big way. When we started International Sourcing Services as a B2B service offering, we realized the potential for directly reaching out to B2C segment, and then with the eCommerce potential, we ventured into online business. We did not deviate from our core, but continued to find additional revenue streams; in our third year of operation we launched our own private label brand in a further diversification move. Although these new business just contribute to 15% of our overall business but going forward the potential is tremendous.
There are a few others I would like to share.
Hire Finance Guys Quickly
One of the mistakes we made early on, was outsourcing finance during the initial period. Looking back, I think finance is a crucial function regardless of the revenues you generate, and you cannot be stingy about hiring your own finance team. It will be more expensive in the long term, considering how much of your time, you could have saved which could have been used to focus on the business.
Review your business every month.
It is critical to keep reviewing your business, when you are in start-up model. You are growing too fast, and you need to know where you stand. Set out targets, not just for sales but for customer satisfaction, cost control, employee satisfaction and keep measuring those on a monthly basis (we do it weekly). This will help to bring the team on the same level as the management in terms of the direction the company is heading.
Spend Time in Building Your Team :
You can’t get everything done on your own. And if you need others to do it as well as you would expect, spend time on developing these skills. It will help you in a long way. So delegate surely. But more importantly, empower them with the right skills.
Reinvest in Business. Don’t block your money in assets
Since we launched a frugal business, every single penny we earned in the first year went back in the business. This will help you fund your working capital and allow you more scope to experiment.
I am sure if you take care of the above issues, you should do well during the initial years and set yourself up to reach the next level of business growth.