Entrepreneurs need to make sure that their ventures reach break-even and show returns early
You are aware that entrepreneurs have to be philosophers. In today’s environment, Facebook and other social media have turned all of us into philosophers anyway—we keep posting pearls of wisdom.
So let me elaborate on
what I mean by the title of this column—Light at the end of the tunnel. I simply mean to ask, when will a new venture turn profitable or at least break-even. In the era of bootstrappers, about whom I wrote in the last issue, this question becomes even more pertinent. How long should an entrepreneur fund a venture before it starts breaking even? Of course, there is no standard answer or formula. It depends on the sector, the nature of business, the scale and the skill-set of the entrepreneur. It also is determined by the environment.
The only guiding principle I would like to propagate and share with you is that like the human body which generates its own healthy blood for itself and keeps the body in shape and disease-free, the venture needs to generate its own revenues at some stage to become like a human body. We know that any human body that does not produce its own healthy blood at some stage can become weak and fade away or not be able to live well. The body at some stage can take doses of blood from outside but at best these need to be supplements.
The startup business enterprise needs to become a healthy self-sustaining body in order to survive and thrive. The entrepreneur is like mother or father who realize the baby needs to stand on its own.
Let me take the case of the industry I know little bit about—yes, I am talking of the media and entertainment industry. We know that most television ventures did not make money but still enjoyed unbelievable valuations. I believe those times are over. The days of long gestation periods and long days of break-even for startups are over.
The investors wish to see traction early and could lose patience and interest in the venture if there is no light soon at the end of the tunnel. Entrepreneurs and ventures who can start showing faster break-evens and better cash-flows will soon attract more capital and attention.
What I am saying was always the case, but I would say the investors' outlook on this in last few years has become even more clear and demonstrable of this trend.
My five suggestions for a budding entrepreneur:
- Keep costs low
- Get yourself to be a key contributor so that your equivalent cost can be eliminated
- Try and do deals with partners' vendors that are linked to the venture and company's growth
- Share the wealth as well as the risk with your core startup team
- While low costs are welcome, there are some mission-critical and core aspects that need to be done on a certain quality and scale—don't be penny wise pound foolish in those aspects.
I must also share that business plans are likely to go awry as the environment and competition are dynamic so having a mentality that I have talked about above is something that will keep you in good stead.
Anurag Batra
Anurag Batra is real life, first-generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. Anurag is the founder and editor-in-chief of exchange4media group which includes exchange4media.com.
To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Anurag Batra'.
Disclaimer: The views expressed here are that of the author and do not represent the magazine's.
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