Figure out if you are facing failure as an entrepreneur and close shop early before you fall into deeper ruin. Photo/FILE
By Moses Njenga
Cash flow is the lifeblood of your business, the
adage goes. Taking this analogy a little further, if your business is
anaemic (not generating cash) or bleeding (losing money), it will surely
This is a highly explored area and much has been said and
written, but every new business will struggle to manoeuvre around these
treacherous pitfalls.
I will highlight two areas that are critical, first in generating cash and secondly in loss of cash.
If you have spent some time in business, you must have come across a common advice for startups to “fail fast”.
The lifespan of a business is said to be perpetual,
it is supposed to outlive its employees and its owners. If its lifespan
is perpetual, a business as an entity can wait for 10 or more years to
turn around and make money, but can its owner?
Apart from sales, other sources of cash inflows for
a business are credit and investment. If a startup has easy access to
the last two, it can easily sustain unfeasible products or business
models for lengthy periods all the while gobbling up much-needed cash.
The advice, therefore, goes that instead of taking
five years and mountains of money to discover that your product cannot
attract the critical mass of customers needed to be profitable, why not
determine to come up with a way to figure that out within a year or two,
then spend the remaining time and money trying out a different idea?
I know your first reaction is that no business
could possibly have an infinite source of credit or investment to
sustain a product no one wants or a business model that is not
profitable.
You need not look far; think about that family
shop, or farm or restaurant that your father or mother keeps asking for a
little more cash to kick start for the umpteenth time.
Think about the business you opened with your wife
so she doesn’t stay home or for that son who dropped out of college you
are trying to salvage from delinquency, and the number of times you have
injected new capital. It could also be the much-hyped “follow your
passion business”.
You converted your hobby into work and believe in
it so much that no one can convince you people don’t care about what you
have to offer or that the hobby cannot generate enough money. So you
keep trying one last time.
A lot of businesses around us are in this trap, and
it is sad the amount of capital and productivity we lose as a nation in
these ill-fated ventures.
Growth
Create targeted milestones for your product and
measure its growth towards each. Monitor your monetisation model and
tweak it to be in tandem with customer behaviour. This way you will
discover soon enough if your business is a hit or a miss.
You will know when new capital injection is needed
and when it is time to pull the plug, get the business out of life
support and let it die while you still have time and money to move to
the next idea.
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