The biggest killer of startups is the startup mindset itself
There are fundamental differences between a business and a start-up, which entrepreneurs seem to miss completely. No, a start-up is not an early-stage or a young business. An early-stage business is an early-stage business.
The definition of a business is the offering of a product or service that generates revenue with the goal of producing maximum profits from such revenue. From my experience in the start-up world, entrepreneurs get so lost in the development of their new tech solutions that revenue and profit is far down the priority list.
Emotions run the show and clarity is a commodity nowhere to be found. In my view this makes a start-up a hobby and not a business. I cannot think of any good business decision that can be made emotionally.
Whenever I need to make a big decision when I know I am emotionally overwhelmed due to the circumstance, I tap into the minds of my business mentors to help me see things from a different perspective and this brings me to the right decisions, without the emotional attachment.
What about the storm?
The problem with running a start-up instead of a business, is that when the storm hits, they usually don’t survive, or those that do, are wrecked when the second wave hits.
A great paradigm shift in thinking about business has driven me to focus on the services within our industry that brings in easy revenue. With the right business processes and procedures, these services are delivered in a lean manner to produce, not only optimal results for clients, but also increases profits.
What do we do with profits?
Those go into investment accounts to stock up the chest to survive the storm. Above this, business processes, diligent paperwork, proper financial management, a strong culture drive and a head of HR that knows their game – these are the things that separate a business from start-ups.
Lack of focus
These are the building blocks of a foundation that allows you to create significance at scale, once the foundation is strong.
I work with entrepreneurs on a regular basis that are more focussed on the next idea or the next product improvement that the drive to focus on increased revenue streams are not there. These entrepreneurs live in a world where they think that all their new ideas is what will finally lift them off the ground when the reality is it just ads weight to keep the start-up from leaving the ground.
When a start-up grows to a point where you produce R5m or more in revenue and you have 20 or more staff, that is when you are moments away from any big storm.
I learnt that the hard way in 2018 when I employed a senior developer in a senior role, who, as it turned out, was not so senior at all.
Without any detail, this person caused so much damage to the business that, if I was still wearing my start-up founder hat, the business would not have lived to see the end of the year. We had to rely solely on the infrastructure we built as a business to keep us from falling over.
I believe that the way our group of companies are structured, is the ultimate recipe for success.
Two thirds of the group consists of real businesses that deliver real products and services that results in strong revenue streams to support the new start-ups in the group. This means that the businesses in the group are run like businesses, and the start-ups in the group are run as lean as the perfect start-up, but with the safety-net of the group to fall back on should anything go wrong.
Yes, things do go wrong.
That is the one thing that has kept us prepared for the unknown: accepting the fact that failure awaits you around every corner.
Preparation is key.
In conclusion: if I had to give advice to anyone starting out, first build a business, then focus on your start-up.
Do this right and your chances of success for the start-up of your dream is a guarantee. Second to this, a start-up is going to need all your attention, all your dreams and your sleepless nights; the team you leave in charge to run the business while you build the start-up is a make or break.
Get the right team to back you and incentivise them to produce the results you require from them.
What about funding?
Ok, one last thing. Funding does not determine the size, success or validation of a start-up.
Funding is just a very big responsibility taken on by the entrepreneur to hopefully fast-track product development and market adoption. To measure the state of a start-up, look at their customers and the revenue they produce each year. Compare that with the profit made and you will get a very clear picture of the state of the start-up and whether it is a business or not.
Out of revenue and profit, profit is the primary factor. A business with R100 000 revenue can be more profitable than a business with revenues of R1m.
Think about your position, consider the reason you started the business in the first place and then decide where your end destination is. Work your way back from that destination and design your path to success.
by Carl Wallace | Founder & Group CEO of Digital HQ