On paper, starting your own business seems easy enough. “Bring in the customers & we’ll be on our way”, you think to yourself. “How hard can it be?”. You project that it will take x number of clients at an average revenue to y per client to achieve total revenue z for the year. You do research around your innovative idea & think that you are creating disruptive innovation & hence competition is not exactly competition. And finally, you quit your high paying job, since the new cash flows are just about to start, right? Well, it ain’t that easy!
Having started a startup recently, I can vouch for the fact that getting your own startup to take off is easier said that done. Hence I have written this post to caution wannabe entrepreneurs of the pitfalls that lie ahead. Hopefully this post will better prepare them to handle some of the challenges involved in setting up your their own business.
First and foremost, innovative idea. The spark of brilliance where the process of entrepreneurship
starts. However unique your idea may be, there is a good chance that someone somewhere has already tried it out. And chances are that they are already making a killing off it. When you discover this, don’t let your heart sink. With billions of human minds thinking all the time, similar ideas are bound to pop up in dissimilar heads. Think of how you can play around with your idea so that it is still unique. With enough iterations, you will come up with a value proposition that is as differentiated as it needs to be.
Secondly, customers. You’re bringing a fairly new idea to them, so it’s natural that their mind will reject it at first. This may not happen in all cases. Some people are quite open to innovation, hence you may find these people quite supportive. Target people who are likely to be supportive. You’re a startup, you’re going to have a lot of things on your hands. If you try to convert all the non-believers, it will be a tremendous waste of your time & effort, for which you may end up getting nothing. So, to start with, focus on the people who are ready to listen to you & are open to your ideas.
Thirdly, capital. You may think that your idea involves minimum physical assets, but you’ll be surprised at how fast asset requirements soar before you even get started. If are going to be on your own, well & good. But if you plan to have even a single employee, you’ll need to arrange for a lot of things for him/her. Apart from the employee salary, you’ll have to arrange for a computer, phone, internet, printer, office space, stationery & so on. Some of these may be small things, but they do add up to a lot of money. So be prepared for this.
Fourth, human resources. To start with, you will not have enough cash to pay any salary to any employee. Remember, you just quit your job? So you can’t even pay yourself, forget paying employees. So to start with, you will have to do everything yourself. You will be the marketer, accountant, sales person, programmer & even janitor. So learn the requisite skills before you take the plunge. More than technology, it is the skillset of your organization that will enable it to survive & sustain. Try to rope in qualified people by offering them stock options in your company. Even when you do get the cash flows going, do not hire a person unless you are absolutely certain that s/he will be a productive member of your team.
Finally, accounting. Hey, you don’t know how will you did unless you measure it, right? To get the most accurate picture of how you’re doing, account for everything that you bring into your business. That laptop that you weren’t using & would have given away anyway should be valued. That magazine subscription that you paid for, for the sake of the business should be accounted. So should depreciation and amortization on physical assets like cars, property, computers etc. After doing all this, you might end up seeing a loss on your books of accounts. Well, that is the true picture. To scale your business, you will need to make enough money to cover all these losses. And besides, you will probably get a tax benefit for accounting for these losses, so it has its own benefits.
These are just a few key examples of the challenges you could face as you set up your own business. As I go long with my own, I will perhaps write a fresh post with fresh examples. But for now, I will leave you to ponder these & gear yourself to deal with them.
Have you set up your own business? Do you plan to do so? What challenges have you faced & how did you deal with them? Let us know through your comments.