टाझम्स ऑफ इंडियाच्या ३ मार्च १४च्या अंकातील असा हा लेख:
6 start-up mistakes to avoid
Chandralekha Mukerji & Amit Kumar | Mar 3, 2014
Starting your own business venture is a tempting thought. You can be your own boss instead of being hectored around. Yet, being your own boss is no easy task. To begin with, one of the biggest challenges that new entrepreneurs face is to convert the idea into a profitable business model. Have you done sufficient research? Should you approach a venture capitalist or a bank to fund your business? How much time should you give to your business to start churning profits? Is it a time to start a business or wait till you gain the required experience?
Experts say that the first year of a venture is the most crucial. It can make or break the business. You make one mistake and it will run over the business. We look at some of the common mistakes that fresh entrepreneurs make in their first year of starting a business. Find out how you can avoid doing so.
- Not doing adequate research
There is no dearth of ideas and types of ventures that you can pursue. However, the tough part is testing the hypothesis—converting your idea into a viable business model, which is not possible unless you have done sufficient market research. Whether you decide to do it formally or informally, you will need data on the size of the potential customer base, competition and external business environment, to be able to clearly define your revenue channels.
Even though the idea may sound novel, it is possible that the market is not ready for it. A thorough research will not only reveal the potential , but also point out the limitations of the idea. Ignoring the results can be disastrous. Take the case of the college start-up of Arun Balakrishnan and his batchmate, which clearly suffered from a confirmatory bias. Balakrishnan started working on the idea of an e-commerce site when they were in the second year of MBA at IIM Ahmedabad. Two angles emerged from their basic market research—one , that the business was scalable, and two, that the market was not ready for the product. They graduated in April 2008, and started LootStreet.com, an online platform for shoppers with the option of bargaining over the listed price, in June 2008. However, 2008 was probably the worst time to launch a business: e-commerce was still very new in India and the economy was in a turmoil. Credit card usage had gone down, defaults were at a peak, and banks had stopped issuing cards.
It was clear that the market conditions were unfavourable. Yet, the duo banked on the fact that things would improve and the business would grow. "You tend to think that what you are doing is the best, look at every roadblock as a challenge and want to take every problem head-on without realising that sometimes you need to step back and analyse if it is viable to push an idea when the external environment is not favourable," says Balakrishnan, who had to eventually join the corporate world.
- Moving ahead on flawed assumptions
Even thorough research can't guarantee success. There could still be a few bugs in your business model, often in the initial financial projections and the whole business math around it. For Rutvik Doshi, former CEO of Taggle.com, a group buying site, it was a combination of incorrect estimates of the marketing expenses, sale projections and a gross underestimation of the competition. The money required to spend on acquiring a consumer was 10 times more than that he realised from a sale. "The quantum of business we were generating was not sufficient to cover the marketing cost. However, instead of objectively analysing the situation, we were continuously trying to find fault with our team, sales team and employees, putting pressure on them to fix problems and bring more business. Later, we found that it was more a systemic problem. We had blind faith in the growth projections and that brought us down," says Doshi, who himself is a venture capitalist now at Inventus Capital Partners.
Suneil Chawla, the co-founder of Koolkart. com, went wrong in assuming other aspects of the business. The company is in a limbo today because Chawla had not expected that his partner would quit. When his partner decided to part ways because of personal reasons, the absense of an exit clause in the shareholder agreement caused the business to come to a standstill.
A simple solution is to beta test your prototype to find and fix the faults before the product is launched. This is also a great way to get feedback from users. It always pays to go back to the drawing board if the feedback is negative. Gaurav Jain, who owns Mast Kalandar, a popular chain of restaurants, had hired food consultants and taken advice from various people to zero in on the menu. "When we started, we had some Mexican vegetarian items with an Indian twist and we thought it would be a great addition to the menu. However, we soon realised that the customer feedback was not good and, within four months, these items were withdrawn," he says. Jain went on to change the menu twice over the first year of operations, incorporating the customers' recommendations.
- Scaling up too early
After the business has been launched, the entrepreneur starts looking for growth. Even if you are able to generate a lot of consumer interest , you ultimately have to scale up the business to make it grow. When you test a prototype or launch a product in a small market, the results are based on a limited experience. However, this changes dramatically when you actually begin operations or reach out to a wider market. In hindsight, Doshi realises that their decision to go pan-India was premature and a reason that led to its failure. "Even though the data was pointing that there was something wrong with our business assumptions, we went ahead and scaled up without fixing the problem," he says.
Moreover, scaling up requires deep pockets. You have to hire people, lease office space in a few cities, tie up with other businesses and market your product. If you don't have the necessary funding required for this, the business will fizzle out in no time. Experts, therefore, advise to nail it first and then scale it up—start small, have short-term goals, perfect the product and the revenue model, and then scale up.
- Not keeping tabs on expenses
Keeping the overhead costs low is essential for a start-up . Whether it is on furnishing the office or buying machinery, you have to be as frugal as you can be. If you are smart like Pritam Hans, you can find a cheaper option that is actually better. Instead of settling for a small office for his fledgling real estate consultancy business on the outskirts of the city, he has rented a plush shared office at an upscale location in south Delhi. "A small office space would have cost me 12,000 a month, but in the shared accommodation , I am paying only 6,000 a month for a fullyfunctional office with all amenities," he says.
Another area where you can cut costs is while building your website. If you are low on budget or just need a basic website, you can use various platforms available on the Net to create it. Also, while there is the constant need to meet clients, do not spend heavily on it. Talk to them through video conferencing or meet them in their office. Then, there is the challenge of sticking to your seed capital and reining in every expense to ensure that you do not go overboard. Jain of Mast Kalandar decided that no matter what, he would not exceed his seed capital of 18 lakh. This meant that he had to compromise on the interiors of his first outlet. However, Jain does not regret this one bit. "It was more about discipline, the fact that under no circumstance I will cross my budget," he says. In fact, he also points out that while his business turned profitable , he had to depend on his contingency fund, so he cut off every possible discretionary expense from his budget. Smita Rajgopal, who runs a creative design studio, Smitten, kept costs down by working with consultants. "In the early days, it makes more sense to hire consultants as you can pay them on a project-to-project basis. This also saves you the trouble of paying salaries every month," she says.
- Underestimating manpower needs
The golden rule of entrepreneurship is not to waste time on something that can be done by someone in a faster, better and, perhaps, cheaper manner. To run the business, you need a team that can take care of various peripheral aspects and leave you with the core functions.
You can also tap your professional network for expertise. Bijaei Jayaraj, founder of Loyalty Rewardz Management, a company that manages the loyalty programmes of debit and credit cards, exploited his alumnus and friend list to set up an 'advisory board' to help him sail through his first-year . "These were people who had around 15 years of experience, were in important positions, and had large networks. It was very useful for a group with such people to come together and help set up and grow the business," says Jayaraj. Whether you hire full-time employees or work with consultants depends on the kind of industry you operate in. Chawla of Koolkart believes that in an e-commerce industry , hiring full-time workers always makes sense if the finances allow it. "Although you do not see your customer, there must always be people who can handle their grievances quickly . Nothing will kill an e-commerce faster than bad customer feedback," he says. But if you are short on cash, or your monthly operations are not generating enough cash to sustain employees , it is advisable to start with consultants.
- Not maintaining a financial buffer
Many people hesitate to start a venture because they are the sole breadwinners for their families and the loss of a regular monthly income can pose problems. A working spouse can ease the pressure. Ask Bhaskar Chattopadhyay, who started Art Square in November 2012 with a seed capital of 3 lakh. "My wife's income took care of the daily expenses, which was a big help and allowed me to focus on the business," he says. The gestation period of a business venture can be long. Jain had to wait for three years before he could pay himself the first salary.
This is why you must estimate how long it will it be before the business can earn money. Experts say you should have a contingency fund to take care of 6-8 months of expenses. If possible , prepay any outstanding loans. If prepaying isn't an option, make sure you at least have the liability insured. Being debt-free will also help you in case you need funding for your venture . The overall portfolio mix will also need a rejig when you start a business. Try to reduce the risk in your portfolio and stick to a conservative mix. Remember, you have already invested in your own business, so there is enough equity in the overall portfolio. Shift the focus of your investment portfolio from equity to debt. You can shift back to equity once the business pick up. Since we are playing defensive, it is good to have some cash reserve in your PPF account, as it is the only investment that will not be attached even if you go bankrupt.
Courtesy Times of India