Fundamental things a Startup founder(s) should keep in mind during the early stages of a company.
As per Startup India data, India has over 28,000 startups currently part of the startup India program. The number is increasing on a daily basis as more and more new companies and initiatives are being launched every day by young and innovative individuals to solve India’s and the world’s problems.
However, when the founders of a startup are building their company and product and are in the early stages,There are a lot of basic fundamental points which they tend to ignore due to either lack of experience, or a single minded focus on the startup’s product or offering. This is especially true of early stage companies who are yet to raise external capital in case they are looking for it and where the senior management is made up of largely young entrepreneurs with little or no experience of working in a corporate environment. The founders often tend to ignore some basic hygiene and operational factors which should be put in place from the beginning to ensure smooth scaling and a smooth fund-raising process.
I am no expert when it comes to overall governance or starting up a company but having been through the process myself including raising funds from a large VC and running a startup for the past 4.5 years, I think it would be beneficial for any budding entrepreneur to keep these points in mind when they’re starting up.
- Compliance: This might seem cumbersome or needless at the early stages of a company but to ensure that all the regulatory requirements are being adhered to since the beginning can save the founders a lot of headache and costs during the fundraise process and when the company scales up. Compliance doesn't necessarily relate to specific regulators such as RBI or SEBI but it also relates to the Registrar of Companies and Income Tax compliances (Even if the company has no revenue or is making is a loss) and State compliances and Labour Law compliances to name a few, if you dont know the laws which are applicable to you, make sure to invest or take help from an experienced Company Secretary and Income tax consultant to ensure you are adhering to all the necessary rules and regulations. For example, a company regardless of its size and nature has to comply with Prevention of Sexual Harassment (POSH) requirements and an annual report has to filed internally within the company to with the local district officer, non-compliance lead to a minimum fine of Rs 50,000 or more. Similarly, Private Limited companies are supposed to file returns with the Ministry of Corporate Affairs and the Registrar of Companies on an annual basis, failing which can lead to penalties as well.
- Financial Accounting and MIS: Most early stage companies which are bootstrapped tend to not maintain proper financial accounts of their operations, this is mostly due to a very low volume of transactions or the lack of bookkeeping knowledge. Founders also don't see it necessary to maintain a Management Information System (MIS) which gives them a snapshot of the business and its operations and growth and KPIs. This mostly stems from lack of experience or the fact that the leadership is so focussed on growing the business a and get involved in day to day activities that they tend to forget to take a step back and review the company’s performance on an ongoing basis to ensure they are on the right track and change the direction of the company if needed. Without maintaining and updating financial accounts , it would be very hard for a company to meet all of its compliance requirements and this is also one of the criteria for a red flag by external investors.
- Always stay connected with investors: Fundraising is a constant process, so the founders of the company should ensure that they take out a few hours every day or week to connect with prospective investors even if they are not ready to raise funds, this would help the company gauge the market sentiment and also brainstorm their progress and the direction of the company with people who might have domain knowledge. Being constantly in touch would also help the founders when they actually hit the road for a fund-raise, founders would already know what investors look for and which ones are more likely to be receptive.
- Start thinking of Profitability and Revenue from the start: During the initial days of startups and VC funding in India, maybe before Housing.com and similar fiascos, VCs were quite aggressive and optimistic when it came to funding startups which may not have a clear or any strategy for revenue generation. However, since the past few years, VCs expect founders to have a vision as to where the company is headed and how it expects to become a sustainable long-term business without external funding. Initial years of cash burn are acceptable but it is very important that the founders don’t plan to rely on external funding forever and work towards making money in the business. There will always be startups which burn cash for an extended period of time and still raise funds but those are few and far in between. Most companies are expected to generate profits to sustain the business and grow it with time. This thought process is missing in the current crop of young and enthusiastic founders who assume that funding will never dry out and then get a rude awakening during the fund raise process.
- People management is paramount: Most early stage startups have a high pressure work environment where the entire team has to put in significant hours day in and day out to achieve its business goals and targets. Founders must ensure that even though the team is working under high pressure, they are not ignoring their concerns and are always there for the team members., Without a motivated team, a company is bound to fail. However, founders must also ensure that they delegate appropriately for two reasons - additional responsibility mostly acts as a motivator for team members as it makes them feel valued as an integral part of the company and trusted, secondly, founders need to delegate to take time out to think strategically and for the long term rather than being stuck in day to day operations, we only have 24 hours in a day, they must be used as efficiently as possible.
- Don’t burn out: All successful entrepreneurs have always ensured that they take time out for themselves everyday or for time during the week to ensure that they are fresh and full of energy for a longer period of time I understand when you are passionate for your business, , you want to give it your everything and you should, it should be the drive which wakes you up every morning, but that does not mean that you sacrifice everything else for it, especially your physical and mental health, time with family and friends and your overall well being.I believe, a fit founder will always be a more successful leader than an unfit one, in all aspects. Additionally, taking a break also gives you something to come back to, refreshed and with new ideas and energy.
Starting a business will most probably one of the toughest things a founder or group of founders will ever do, you will have sleepless nights, really low days, and very high highs. Every day new issues will crop up which will need your immediate attention. So if the founding team keeps these few things in mind while running the business, they can avoid a lot of smaller headaches to focus on the big picture and their true vision.
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