The Best Things I Learnt as a First Time Entrepreneur (and wish I knew before)

Start-ups: 17 tips for starting out in 2017

Ratna Chengappa, interim CFO, interim.team


Start-ups: 17 tips for starting out in 2018

It’s another new year already and this young century has already seen change like no other.

With so many leaders out there in social media and so many new enterprises to watch and learn from, you would think that an ideal ‘win-win’ should come easy to the first time entrepreneur. Not always.

Media is flooded with great stories from superhuman billionaire entrepreneurs. They make a fascinating read, no doubt, but often I find they rarely address the practical issues and day-to-day problems experienced by the majority of mere mortal entrepreneurs like myself.

I love working with start-ups and am very fortunate to be currently working with two such ventures, serving as the CFO of interim.team, experts in Growth Hacking and C-level leadership, and my own new venture for 2017, Intelligraft, specialists in next-gen ERP and cloud solutions.

I learnt a lot before, during and after my first foray into entrepreneurship. Much of it was not something I could have prepared for, no matter how many business management seminars I attended or books and articles I read beforehand. I found it was not easy to get good advice on these matters, so I hope these 17 lessons, learnt the hard way, will help ease some the challenges you may face.

  1. Watch the money like a hawk:

    Are you making a profit? How much? How often? If not, why not?
    Make sure you have unrestricted and frequent access to all financial data (bank statements, financial KPIs, expenses, budgets and P&L reports), especially when others are involved. Focusing on revenue and sales alone can be misleading and can give a false sense of success. Profit (the bit that’s left over after deducting costs) is often the truest measure of how well you are doing. Of course, it can be hard to compute without the right tools (see point 6) and while many entrepreneurs dismiss the need to make a profit (often citing examples like Amazon and Uber) most companies need to, and should, make profits to have a serious shot at surviving and thriving.

  2. Collect your dues:

    It’s your money! Bill fast and chase arrears.
    It surprises me how many experienced business people whom I meet are adept at dealing with customers, sales and tech but let the mundane task of collecting “their” earnings slip. Always make sure that you have a well-managed cash-flow and sufficient operating reserves at hand – if you’ve earned it, collect it. Think of it like having enough fuel in the tank and no leaks, otherwise you will be stranded!

  3. Preserve your assets:

    If you can, move your excess capital into a separate account from the one you use for day-to-day transactions.
    It can be a simple and effective way to ring fence it so you need a formal board approval to use the extra capital. Also, it can help protect against falsely overestimating how much money you are really making (or losing) on a daily, weekly or monthly basis.
    With one windfall that we earned from a large deal, the board voted to invest in a high-yielding investment to protect this dormant capital while making it work for us at the same time.

  4. Sharpen your finance skills:

    It is possible to do well without an intricate understanding of corporate finance.
    In a 2007 TED talk, Sir Richard Branson jokes that he only recently learnt the difference between net profit and gross profit (after decades of building successful and enormous businesses). [ref: https://www.youtube.com/watch?v=3XQcdVp9sls]

    That is Sir Branson, though.

    For lesser-mortal entrepreneurs, it is a good idea to make sure that you understand the key financial factors which relate to your business.

    If you need a jump-start, grab a copy of Entrepreneurial finance – Steven Rogers. It is written in a simple and easy-to-follow style, and I quote from pg 2: “They [entrepreneurs] must realize that finance is not as difficult as it is made out to be. It must be used and embraced as it is one of the key factors for entrepreneurial success”.
    I personally found executive education to be extremely beneficial, helping me to sharpen up my business skills, however this takes some effort, planning and investment. But going to business school is not the only way – now there are even quicker and more direct options: lots of quick and cheap MOOCs, books and websites which you can easily avail of. At the very minimum, it is a good idea to understand your company accounts and key concepts like direct costs (of sale), gross profit, net profit and EBITDA. If you can go further, learn about funding strategies, taxation (including withholding taxes if you have foreign companies) and the mysterious topic of company valuation – topics which are really handy when securing investment, sharing profit, granting equity and planning exits.

  5. Budget wisely:

    Whether you are bootstrapping, or using investor’s money, use your resources well.
    A budget can be hard to devise and even harder to stick to. It is not necessarily an attractive way to run a start-up but will hold you in good stead. To emphasize this point let me simply quote an outstanding example from Bill Gates. “The thing that was scary to me was when I started hiring my friends and they expected to be paid. And then we had customers that went bankrupt – customers that I counted on to come through. And so I soon came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year’s worth of payroll, even if we didn’t get any payments coming in. I’ve been almost true to that the whole time.” [ref: pg. 100 – What They Teach You at Harvard Business School – Philip Delves Broughton]

  6. Tool-up fast:

    Upshift to a professional finance platform as soon as you can, especially if your business is growing.There are plenty of cost-effective SAAS offerings available now, far more than when I started out a decade ago. You can get accurate, real-time and on-demand reports to easily assess your financial position without having to struggle with increasingly complex (and error-prone) spreadsheets and estimates, or having to wait for the annual accounts prepared by your accounting firm, usually several months after your financial year-end.Leveraging these tools effectively will help you cover the points mentioned above, and also empower you to make well-informed decisions.
    Look out for more on this in my next article.

  7. Strategise:

    Many entrepreneurs take the “Screw it. Let’s do it!” approach (ref: Losing My Virginity – Sir Richard Branson) – I was one of them.
    At some point, though, even when you are in the thick of it, you should invest time in defining and regularly refining your strategy, by sometimes abstracting yourself from day-to-day operations. Ask the important (and difficult) questions.
    For example – Are we performing better selling services or products? How much should we invest in product development and innovation vs consulting and services? How do we make money with those products and services – licensing, subscription, sales, or by some other deal structure? Is our goal to hold out, give it away for cheaply/free and try and sell once we have traction? Are we entering a mature and well established market and if so, how can we compete with the market leaders and/or first movers? What are the margins? What happens if a key technology we are relying on gets acquired? (This is what happened to us, with the Sybase acquisition by SAP – we were lucky to be able turn it to our favour).
    Obviously there are many more questions to ask, some more relevant to your business than others, and it is not possible to predict and analyse all future scenarios (Brexit and the recent demonetisation of the Indian currency, for example, seemed to take everyone by surprise), but it is certainly worth exploring and including the ones you can foresee in your game-plan.

  8. Plan for the best and the worst:

    Building a venture takes an enormous amount of drive, enthusiasm and up-beat determination. But there are always two sides to a coin and you can land on either one on any given day. Playing the devil’s advocate could be your saving grace. Don’t shy away from taking a pessimistic view when assessing risks and performance, and being ready to react and adapt should the worst happen.Especially before you find yourself at risk of losing your home, pension, life-savings and/or children’s college fund, which can happen sooner than you think, if you cling to non-viable ventures and investments, funding them yourself (David Brent: Life on the Road). You have to be brutally honest about how well your business is performing and knowing when (and how) to take action can be essential.

  9. Get good tax advice:

    Spend time investigating what the most tax efficient structure could be before you grow too large.A good set-up could be to have a local company to transact but an offshore holding company to retain profits and/or hold intellectual property. Locating yourself in a state with lower taxes could be another option. Be wary of transfer pricing and other subtle, but internally relevant operating costs. Get professional advice when setting up such structures – do it right the first time so you don’t lose sleep (and money) over tax issues later.

  10. Get good legal advice:

    Gentleman’s agreements, e-mails, personal favours, written assurances, verbal promises and friendly alliances are hard to enforce, and sadly, often forgotten – rely on them at your own risk. Just because you have a contract does not mean people will stick to it and enforcing such things in law is slow, risky, stressful and very costly. It is sad, but some can try to take advantage of this, so make sure you have the right processes and measures in place to identify, regulate and enforce things quickly, easily and up-front.Even if things don’t go according to plan, you will be in a better position if you made the effort to get legally enforceable contracts, agreements and resolutions in place, and stuck to them.Do it sooner rather than later. Shop around and find a good lawyer with reasonable rates and one that you are comfortable with and understands your business. You will be glad you did, especially if a crisis occurs.

  11. Approach the topic of equity with great care:

    If someone approaches you for an equity share, they need to bring something really special to significantly enhance the business. Cash injection, strategic partnerships and technical skills are usually not enough – all these can be borrowed, rented, hired or contracted in – and are usually not good enough reasons to give away equity. If they want a partnership, first try a dealership or reseller arrangement, so that they can prove the relationship works and is profitable.There are always exceptions, of course, which you need to judge carefully before committing.

  12. Don’t be in a hurry to share:

    If you have to give away equity, don’t do it too early and have a strategy defined up-front.
    This is a huge topic which is discussed at length in The Founder’s Dilemma – Noam Wasserman, but some basic tips are:
    a) Have separate classes of shares for different purposes e.g. Class A voting stock, Class B non-voting stock, Class C non-voting stock/non-dividend bearing, and so forth. Separate share classes are key because dividends and voting rights do not need to be equal across classes.
    b) Ensure you utilise vesting periods, options and exit terms to protect against people accepting them and quitting soon after.
    Some agreements have in-built termination clauses that withdraw share options when someone quits.
    c) Get a cast-iron share-holder agreement and have it registered in court officially by a lawyer – if things go wrong, this can be your only defense.
    d) Be very clear in all the main concepts (anti-dilution, anti-competition, drag-along/tag-along rights, unanimous agreement topics, inability to participate due to death or incapacity, enforced exit, etc.) – but beware, these can be used against you also.

And at the risk of repeating myself, get professional help! Sooner rather than later.

  1. Trust and respect your customers:

    Getting customer contracts signed can take a long time. And some can be really lengthy and complex, especially in highly regulated industries. In my experience, however, it is rare for a customer to use these complex clauses against you, so these can be less risky than your own internal dealings, especially with large well-known firms.
    Clients hired you because they want you to deliver. They prefer you do a good job in the first place, especially if they have been through a complex vendor selection process to get you on-board. So, it is worth being flexible to respect and accommodate the legal policies of such customers (who often cannot bend).At worst, if something goes wrong unavoidably, you need to fix it with skillful and pro-active management. And even some free/discounted remedial work. Keep things sweet and make sure you get paid and that they remain happy.

  2. When dealing with experienced investors be very wary:

    Professional investors know every trick in the book and more. They will try to get their pound of flesh (with blood), if not two!
    In my experience, even when reputable law firms are involved, you need to be careful – I found mistakes (possibly intentional) in contracts written by prestigious law firms which would work against me had I not spotted the errors and challenged them there and then. Impartial advisors can in fact be secretly biased. So please read up, stand your ground and be prepared to negotiate or even walk away, if they cannot agree to fair terms.

  3. Experienced hires don’t always deliver:

    When you are experiencing the challenges of scaling you may feel lost.
    It is tempting to hire someone more experienced than you who has worked on a larger scale, in the hope they can steer you in the right direction and help you reach new heights. Unfortunately, I found this does not always work out. Zipcar’s founder, Robin Chase, says it best: “Our mistake: hiring a big-company guy for a start-up. He spent a lot of money on lunches and parking, created huge lists and detailed tasks and procedures that were 25% out of date by the time they hit my desk and 50% out of date by the following day. He was used to working at a much later-stage company where the goal was to put procedures in place and follow them strictly.” [ref: Chapter 8 – The Founder’s Dilemma – Noam Wasserman]

  4. Individual motives may not always be in the best interests of the company:

    I had always assumed that like in sports, teams would align and focus on achieving a common goal. I was naïve.Unlike sports where the goal can be clear to all players (beat the other team), business goals can often have different meanings for different people. This can result in people tugging in different directions or forming competing factions and groups. This can be disastrous amongst a group of share-holders and board members. Even though I experienced this first hand, it is hard to say how to avoid this. It is possibly one of the trickiest challenges of all, as summarized in this quote “ Business is a constant process of keeping your own guard up – in fact, it is the only way to do business – while encouraging others to lower theirs.” [ref: Pg 16 – What They Don’t Teach You at Harvard Business School – Mark H. McCormack ]

  5. DO NOT neglect your health and family:

    I learnt this the hard way. It is so easy to put your business first and your family second. I made this mistake for many years – in my experience, no venture is worth ruining either, or both, of these for.


Launching or already running a business? Need help with leadership, growth hacking, coaching ¦ mentoring operations or tech?

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