Some Tips for Aspiring Entrepreneurs

The Difference Between Running Your Own Business and Working for One

Entrepreneurship is by definition risky and an entrepreneur is one who takes risk with either his or her money or money raised from financial institutions and venture capitalists. Hence, entrepreneurs must keep in mind the fact that they need to be cautious and prudent about their ventures as failure means that they must take the responsibility and unlike employees, who can find other jobs, the entrepreneurs have to live with bad credit history which in turn leads to lack of financing from institutions. Of course, all this is when the entrepreneur starts his or her business and before that, the task of raising capital is by itself such a huge task that many potential entrepreneurs fail at this step itself.

The key to raising capital from venture capitalists and angel investors is by having a compelling and innovative idea and by having a well thought out business plan. More often than not, potential entrepreneurs think that they have a great idea without doing their homework, which a seasoned venture capitalist would immediately shoot down. Further, many entrepreneurs do not develop well thought out business plans that do not take into account all aspects of running the business including revenue projections, break even timelines, the market potential, and more importantly the cash flows that are so integral to keeping the business afloat.

Some Tips for Aspiring Entrepreneurs

To take each of these aspects in turn, we find that having a realistic projection of future revenues is very important as it gives a basis to the proposal from the entrepreneur.

In other words, unless there is a clearly defined roadmap to the breakeven point and the projection of revenues that is practical and based on solid market statistics and consumer behavior, the business plan would not be feasible. After all which financial institution or bank or venture capitalist would put their money into a venture that does not have a plan for returns and profits that is not based on airy fairy dreams but on data. Apart from this, the entrepreneur has to manage the working capital requirements in an astute and financially savvy manner.

Research has shown that most ventures fail because a year or two into the business, they face liquidity crunches and are unable to meet the working capital requirements needed to keep their venture afloat. Managing and projecting cash flows are two different things and while one can project huge cash flows, managing the actual receivables and honoring the payables are entirely different aspects. One should not be forced to windup one’s business because the payables are more than the receivables by too high a margin. Alternatively, the payables are coming due and the receivables are getting piled up without any hope for collection.

Some Dilemmas Faced by Entrepreneurs

The other aspect about entrepreneurship is the staffing factor. The dilemma of choosing staff and employees whose loyalty to the entrepreneur and commitment to the venture versus hiring staff who are high fliers but who might overrule the entrepreneurs is a key aspect. Of course, this does not mean that the venture must be staffed only by yes men or those who cannot find employment anywhere else. Rather, the point here is that the question of whom the entrepreneur trusts is paramount and hence, the staffing must be done after doing due diligence.

Further, bringing in outside talent as opposed to appointing family members and friends to key positions is another aspect that needs careful deliberation and conscious application of one’s mind to the hiring of staff.

Closing Thoughts

Finally, entrepreneurs must be on the lookout for corporate predators who once they realize that the venture is doing great, might invest substantial money into taking over the venture. This has happened in practice across the world and the strategy of the entrepreneurs in this case was to hold the majority stake in the venture and keep management control and retain shareholding patterns tightly and closely.

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