Raj K Pathak

Connecting Entrepreneurs with Information,Knowledge & Networking

3 mistakes worth avoiding by a start-up

November 16th, 2014

 3 mistakes worth avoiding by a start-up

 

Years ago while I was Advisor with CyberMedia,I had the opportunity to hear one of the most admired entrepreneurs of current times namely Azim Premji, Chairman Wipro Technologies. He had accepted prestigious “Lifetime achievement Award” by DATAQUEST, the star publication of CyberMedia and had come to receive it in person at my favorite venue Hotel Maurya Sheraton, New Delhi.

According to Forbes, Azim Premiji was the richest Indian during 1999-2005 and is currently the fourth wealthiest Indian, and the 61st richest in the world, with a personal wealth of $16.4 billion in 2014. In 2010, he was voted among the 20 most powerful men in the world by Asiaweek. In December 2010, he pledged to donate $2 billion (approx Rs 8000 Crore at 2010 rates) for improving school education in India. This donation is the largest of its kind in India till date.

In his acceptance speech, Azim Premji told the audience that while he was on his way to the conference hall, a young journalist wanted to know the secret of his success. Premji further said he wondered why media only talks about success and never about failures. Talking about failure is equally important as it is impossible to taste success without experiencing few failures. He went on to share failures he experienced before he tasted success.

Yes, failure is a stepping stone to success. Unfortunately in India, a failure is not taken kindly by anyone therefore it makes sense to avoid a failure as much as possible.

Many startups fail just because of mistakes they make which could have been avoided. Due to a lack of experience, many startups face the misfortune of failure.

I have shortlisted 3 of such avoidable mistakes.

1- Having an idea but no business plan. Having an innovative idea is wonderful. But unless it is put on paper, it is of no much use.

Many startups think writing a business plan is necessary only if one wants to raise finance. Wrong. A business plan plays a vital role in determining future success. A business plan, after all, serves to guide the startup in the right direction by answering many questions such as:

  • What is the gap your startup is going to fulfill?
  • Who are the potential customers?
  • Who are the company’s competitors and what are they doing?
  • How can the company measure success?

In other words, a sound business plan determines every aspect of the startup. And whenever the company is stuck or a new venture is to be launched, refer to the business plan.

And yes, a ready business plan always helps in raising money quickly.I have come across many startup entrepreneurs with great ideas, having invested their own money too at initial stages of business but couldn’t raise finance from banks or VC’s as they didn’t have business plan ready at right time.

2-Want to go alone. It is a proven fact that startup driven by single person have usually not tasted much success. Moreover, a startup anchored by one founder rarely gets VC funding.

Establishing a company is hard work and it often takes more than a single individual to launch a business. There are highs and lows, not to mention some tasks that few can undertake alone. Crushing blows and setbacks sometimes make it hard to continue on without another person’s encouragement mention some tasks that few can undertake alone. Then there’s a need to market the plan and build the product or service. Money has to be raised to launch the startup.

In most situations, it’s an incredibly daunting to tackle all this alone. A little help from friends and professional colleagues can help in launching the startup.

If your connections do not work, you have no choice but to find a stranger as a co-founder.  You can find them on startup networking websites or else you can  find them at startup networking events  or at  shared startup co-working facilities.

3. Low on Financial LiteracyWeak financial literacy may be the single biggest reason why startups don’t succeed. Many business owners, who start with an idea or a problem that they want to solve, seem to have difficulty with financial management tasks.

A study  shows 97 % of entrepreneurs make their debut with less than Rs 2 lac, mostly funded out of their own pocket in the form of personal savings, credit cards and lines of credit. As they build their businesses, entrepreneurs find themselves navigating through obstacles that include filing taxes and managing payroll.

To finance growth, entrepreneurs need to speak the same language as banks, venture capitalists, governments, etc. Financial literacy is more than just hiring an accountant. It includes building a knowledge base which enables an entrepreneur to make important decisions about company finances.

A startup needs to understand the importance of preparing financial statements from a long term perspective. The purpose of financial statements is to communicate the state of affairs of your business. The three most common and important financial statements for a startup or for that matter any businesses are balance sheet, an income statement (profit & loss account) and a cash flow statement.

Additionally, Financial literacy helps a startup know about his rights and obligation under Business Rules & Regulation, Taxation and various Central & state Govt Acts .

How many startups would  actually know if and when they come under the compliance of Service Tax, VAT, TDS etc. Large number of the startups don’t know when tier enterprise would have to comply with Employee Provident Fund or ESI Scheme.

Having financial literacy, the knowledge that enables an individual to make critical and practical decisions with regards to finances, is extremely important for entrepreneurs and critical to successfully growing a business.

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