Updated: Aug 14, 2019
Ever since I went independent, which was about 11 years ago, I've seen many of my neighbours come with a lot of fanfare and go in double quick time. All of them were from different domains - children's education/fun centres, apparel, insurance business, engineering components, restaurant business, training, tech-services, grocery ....
I say fanfare because, they invested quite a bit to give their environments the look and feel they thought would be right to bring in business, spent on publicity, saw an initial spurt and then failed to sustain beyond one year, in some cases just 6 months. A couple of them moved to a relatively cheaper (less expensive real estate) location of the city to try again with lower overheads, many others just shut down.
In the recent months, I've come across 2 more entrepreneurs/businessmen who are on choppy waters. One of them is in the fine-dining space while the other is in the area of unique arts & crafts. Both are bright, fairly young, have some prior experience and passionate about what they have chosen to do. One of them, I know, is in the process of taking steps to bail out. The numbers just do not add up. In one case, the ship definitely has a leak which is too expensive to fix and in the other, the ship is OK but going to be running aground soon.
Here are some thoughts which I'm putting down for the benefit of many friends who are in various stages of either starting out on their own, or are already captaining their respective ships. I'm no expert, but I've hung in there for a while now ...
Talking to both these 'captains' made me realise that neither of them really created a water-tight business plan. Maybe there was a spreadsheet with some numbers, but I don't think enough went into determining the amount of minimum business which would be required to justify the operational costs. In both cases, I got the feeling that a big assumption was made that customers would flock in huge numbers. I don't think the numbers were reviewed by anyone else, or if the review did happen, the feedback was either sugar-coated or feedback was ignored.
I think it is crucial for us to be pessimists when planning. At least until we have crossed the early stages and established ourselves. We need to think big and yet think of seemingly small things too.
Till we have a certain loyal customer base to start taking more risks. Unless, of course we have deep pockets, plenty of resilience and take the right actions to turn things around.
Size and scale
This is an extension to business planning. There can be situations where we might decide to test the waters initially and then on the basis of lessons learned, decide on how big we want our venture to be - how much to scale and how much to spread (both geographically and in terms of portfolio of offerings). Then look at finding the money and resources before stepping on the pedal. In some cases, like I've seen in a couple of my own initiatives, there is an optimal size to be at. Growing beyond a point is not sustainable, given market size/reach and operational costs. Every business need not be built with the intent of scaling endlessly. Even a human being attains a constant height and weight at a certain age. That does not limit his/her capabilities though. We can continue to scale in terms of the value proposition we have to offer. And we should. Else, we will get beaten by someone who finds a better/cheaper way of doing what we have been doing. It can get quite monotonous too, taking the fun out of every-day work!
Anticipation and ability to take corrective actions
In quite a few failed ventures around me, I did not get the feeling that the promoters planned for lean/tough phases. In fact, I don't think there was any attempt at doing a risk analysis and/or coming up with a mitigation plan ahead of time. So when the first major setback hit them, the captain looked at bailing out as the only option.
Entrepreneurship is not for folks who love the 'glamour' and 'independence' it appears to provide - at least that is the view some people seem to have. Like in any marriage, this too has a very short honeymoon phase.
The trick is to see it as a long term responsibility. Willing to change the baby's diapers when needed. Showing patience when dealing with that unpredictable teenager. There can be phases when it will be a 24x7 job.
In some cases, we can reduce external dependencies to the point where they do not come in the way of sustainability. For that, we need to be ready to roll up our sleeves, be prepared to sweat it out and have very strong core competencies when it comes to the area we are operating in. This helps us run the ship with less skilled/easily available staff if it has to be done. In quite a few failed ventures, one of the similarities was the fact that the founder came in with no specific skills in the area. Had an idea, brought in funds, hired a team and probably prayed for luck. Just being strong in communications, demonstrating passion and some hype on social media did not help them beyond just getting started.
As an example, I've seen a milk distribution model break down because transporters were switching off their cooling systems to save their own costs and/or door delivery agents were not being efficient. Product was good, customers were willing to show patience ... but not beyond a certain threshold.
If it is a complex venture with many dependencies then a dependancy matrix has to be drawn up and all points of (potential) failure need to be identified and work-arounds/mitigation plans have to be put in place from the start. In many cases, the venture may get only one chance to go at it.
There can be many more relevant factors to consider. There can be factors beyond our control which can affect our little venture, or a set of mis-calculations, or a major disruption rendering our idea obsolete, but it is sad to see a venture closing down due to avoidable reasons.