In one of our previous articles, we had given some words of advise for startups & promised to give more as our own startup Digitree Digital evolved. Well, here we are! Back to share our learnings with you! Given below are a few survival tips which startups should keep in mind while they go about the big bad world of business.
Cash flows vs Innovation
Cashflows are the lifeblood of any business, small or big. If you’re not generating cash within a few months after you set up shop, your own appetite for continuing business starts to decline, not to mention those of your employees & investors.
Startups often are keen to innovate & want to avoid doing ‘Me too” products and services. However, innovation often takes time to deliver results & in the meantime, it’s not a bad idea to do some of these “me too” services for generating some cash.
Find products or service which are not too difficult to do & which you or your team have some expertise in. Monetize these services to start earning money, even a little of it. Once the cash is flowing, your organisation will be in a far more comfortable position & from here on, you could focus on innovating.
Only start work based on firm orders
This is especially relevant if your company is into B2B services. Startups tend to be keen to get things going & in the process can overlook the basics of conducting business, like having an agreement in place. Often, work is started on the basis of verbal understandings which can lead to some undesirable consequences such as cancellation of the order without receiving any payments.
If you start work basis a verbal agreement & then your client abandons the project, there is nothing to prove that they ever placed the order with you. Also, since you’re a startup you probably won’t have much bargaining power with respect to the client & hence will end up foregoing the pay for the work already done.
To avoid such a situation, always have something in writing before you start work, even if it’s just an email. Try to get advance payments wherever possible, as once you have the payment, you are in the driver’s seat & not the client!
Design your revenue model in such a way that you get a healthy combination of project based & weekly/monthly/annual recurring payments. The recurring receipts are important as they add an element of certainty to your cash flows & make funding operations and expansion much easier.
Also, if you’re thinking of getting venture capital, you would want to show some recurring revenues to the VCs before they agree to invest in your business.
Recurring receipts also mean that the sales effort of your organisation can be diverted to selling new products or getting new clients rather than selling the same old bunch of products to the same clientele.
Finally, plan your taxes well. As a startup you may be exempt from paying certain taxes. At the same time, you don’t want to miss out on paying the required ones. Hire a tax consultant to help you do the planning.
Do you own a startup? What has been your experience running the business? Do let us know through your questions & comments.