View from the sidelines by Venkatesh KrishnamoorthyBefore talking about failure, let’s discuss odds of success. Certain things in life are overvalued. One of them is success. One mighty success will sweep many failures under the carpet. Abraham Lincoln is a classic example of triumph at the last frontier. Except for presidency, he failed multiple times. The tale is legendary. Success is a sweet moment that is a harbinger of good times.
Is success guaranteed in any endeavour? Certainly not. Especially in a startup. “Birds fly, fish swim, start-ups die” is a famous adage. If we look at the basics, it’s as simple. Whatever the service or product a business offers has to be accepted and used by customers who pay for that service or product. Building a steady cash flow to sustain the business is important. As time goes by, innovating and differentiating from competition is essential to success. Things don’t happen as smoothly as we think though.
Initial capital. Any business needs initial capital, some in droplets and some in torrents. If you are offering a service based on your knowledge, then the initial costs may be low and you can get paying customers quickly. Think of a restaurant business. You need to setup the kitchen, find a place, hire people, get furniture, and have an awesome menu and a great cook. So you need to spend from your own saved money or raise money from investors, as a loan, or borrow from family, friends, and fools. Then after this investment is done, the crucial part is getting patrons to visit your restaurant and get ‘aha’ feeling that they spread your restaurant through word of mouth. As more customers walk in, your cash registers get ringing and you make a good business. If there is any hiccup in any of the steps, it is a road to failure. Supposing you don’t get a great cook or people to serve clients, then you are forced to cut down size, restrict menu, and firefight. Supposing initial capital is below your requirement, you need to start small. The greatest contributor to failure could be a report in the press about food poisoning from your restaurant. If the occurrence is twice after you fought the first instance as a human error somewhere, there is no other option to shut down the restaurant. So your energies are spent in avoiding catastrophes such as these. So to succeed, you think how do I ensure that my services are top-notch, I get excited customers, and my cash register is positive. But if you ever fail in keeping up, there’s a valuable lesson learnt and it’s not end of the road.
Cash flow. However crazy your idea may be and how much ever it can get everyone excited about it, if you start a business around that idea, the important vein that keeps the business running is cash coming in. Don’t count the investor money or your own investments in business. The money coming from customers sustains your business. It’s important to get paying customers quickly. What happens if cash flow is negative, which means you spend more than what you earn? To keep the business running, you raise cash from known sources first if the requirement is small, sell stake if the requirement is large, or borrow heavily betting on goodwill and future growth. Well, if that risk pays, then you are safe. If you are still unable to keep positive cash flow, then the option is to sell your business to some takers or the worst is liquidation. So focussing on cash flow is very important.
What do we learn from the Kingfisher Airlines that is struggling now? If you take a loan, pay the dues on time. What happens when you fail to do so is it raises doubts about your ability to run the business. Airlines, being a high-cost operation, needs a certain incubation time to turn positive but in the intermediate period, the creditors should be kept in good humour. Competition, external environment, general market trend, or lack of need for your services or product can all strain your business. It’s important to turn quickly and change your directions so that you end up feeling good and keeping cash flow positive. It’s your ability to pivot at crucial points that will help you succeed.
What is pivoting? Let’s discuss that in our next post.