Before taking the plunge to start your company

Gyan, the strategy consultant, had a question from an old friend, Kaushik Ghosh, who was an alumnus of a prestigious management institute.

Kaushik, who was in a senior position at a leading corporate suddenly had taken a fancy to starting his own business. He had a couple of ideas and he was connecting with Gyan to see a) if any of these ideas were worth exploring and b) if funds could be raised for the new venture. Here is what Gyan had to say.

"Both the ideas look interesting and may be worth exploring. However they would need some gestation time and some amount of funding initially. How do you plan to take this up, is it your own money initially or part debt and some angel investment?

If debt, do you have the ability to take a loan? If yes, do you have the ability to pay back the loan? Taking a loan is only one side of the equation; you need to generate sufficient income to repay back the principal and interest. Can you do this?

If you intend to start with some angel investors backing you, then you would need to demo your risk taking and belief in the venture and put in some money of your own, otherwise the investor may not be interested.  I have been hearing  from a couple of sources that investors are looking to fund cash flow positive companies in the immediate/short term. i.e. I understand a company with steady cash flow is more interesting today for most investors as compared to a project which may take more time to yield money. This is one of the fall outs of the current economic scenario, where cash is again king.

The other point is re the market for your idea. One needs to understand if there is indeed a market for what you are thinking of. If the market is not really there, then we need to debate on how the markets can be created, because you have looked at the pain points and they are real pain points. Today, people are unwilling to part with their money readily and it may be a challenge to get them to pay for what you are offering. They may be willing to live with the pain and keep their money.

Funding is not so easy to raise today, hence you may need to plan for a longer period for this. Of course you may have someone willing to back you or may be lucky and get someone to fund you. However in the planning, you need to assume it may be about a year at least of self funding. Are you prepared for this? What is the budget you want to put aside? What is your personal risk appetite? What are you financial commitments that you must meet? Putting aside all this, how do you proceed?

Maybe you can build a budget and work around this and put some time lines.

Your motivation for this activity is the key and the ability to stick through this as contrasted to having a job on hand and steady cash inflow. This is not as easy as it sounds. So please think through this carefully along with your immediate family, as applicable. Entrepreneurship also impacts the immediate family circle.

I am sure you may be aware of much of what I have listed, but it is important to think and then take a plunge."

Anjana Vivek
About Anjana Vivek 45 Articles
Anjana Vivek, Director, VentureBean Consulting Private Limited, is a consultant, teacher, writer; CA & visiting faculty at IIM(B). Her specialties are business models, funding strategy, entrepreneurship, M&A and valuation.

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