So, what are some of the common basic truths that many founders miss at the outset but can have a major potential impact on the business in both the short term and the longer term? This question could easily be re-phrased to ‘what are some of the top tips for founders?’
Perhaps the most basic truth is that almost everything will take twice as long as might be hoped, and it will cost twice as much. Either of these events can have a major impact on cash flow, and indeed the financial health of the business. Of course, if development of your product or service, or your business in any way, delays it generating income then a longer cash runway is required. Likewise, if costs are higher for any reason, then access to a higher level of funding is also required. But the basic truth is that it is important to expect the unexpected and to properly understand your funding requirements.
These first points are then very directly linked to the next, and without doubt they are both the most common and the most frustrating. It will take longer to raise funding than most founders allow for. The typical length of time to secure funding is six months after the process begins; that is, once everything is in place. It can of course be quicker, but it will often take longer. Therefore, when running an early-stage business that is looking to scale, the cash runway should always be for a minimum of six months even when allowing for the fact that things will take longer and cost more than targeted. Any financial forecasts must allow a sufficient contingency to reflect this.
A totally unrelated, but nevertheless easy to observe, basic truth is that founding and running an early-stage business can be a difficult, and certainly a time consuming, undertaking. The journey will be filled with frustrations and even sleepless nights, but it will also provide a greater sense of achievement than most founders would find possible by working for someone else. The risks, both financial and otherwise, might be higher but there is no doubt that so too are the potential rewards. Founders and entrepreneurs tend to have certain character traits and if almost any small business owner is asked if they miss being an employee then the answer will be a resounding ‘no’.
If the new business is started with co-founders, then a founders agreement needs to be put in place which not only details ownership, duties, and other obvious topics, but it also states very clearly what happens in the event that one of the founders decides to leave, or is removed for some reason. This can often be overlooked in the excitement of establishing the new venture and whilst all have the best of intentions and share a friendship or whatever brought them together – but things might not always be so convivial.
Many basic truths then are about hoping for the best but preparing for something less. If not the worst, then at least what many with more experience would consider to be the most likely. And the top tips would be to have a long and serious look at exactly those areas and having a plan to deal with them.
5th April 2022
in British English