The word ‘failure’ is a powerful word in the lexicon of English language. It shows that something has stopped working, or could mean an end of an endeavour. We have seen already that failure could happen due to cash flow problems primarily or external environments such as market dynamics could play havoc with your plans. But there are two more leads to failure that are more internal than external. When the inside contributes to failure, the recourse to success is usually easy. It’s like removing an allergen causing a diseased condition.
Early investment in huge torrents. Bootstrapped businesses are good because it shows the resourcefulness of the founder(s) in making something work and the money is hard earned. Bubbles cause investors to bet on a novel idea (without even a prototype) and invest in torrents. We could call eCommerce a bubble now. Bubbles are characterized by unusually high valuations for what returns may not be worth. The Internet boom of the early 2000 and the telecom bubble in the Valley are such. In India, such investments are rare but they do happen much without notice. So much money in the bank early on spoils the initiative of the founders in some cases. If you are not careful with money and end up spending huge amounts on many things such as a plush office, extra-company heads, or not being cautious in getting a huge infrastructure ready early on, that would surely show its downside at one point in time. Any investor expects returns and the business investors usually expect more than 10x returns. The very fact that they have invested means they perceive the business to fetch them 100x returns or more. Some companies have gone on to give windfall for investors. But many have failed. The major reason is the startup getting a very early investment and spending too much on things that don’t matter. Hiring a senior executive at a high price tag also burns your pocket. Whether bootstrapped or invested, if you are not careful with your money, you will surely see your business slip into disarray without a direction. Keep a tab on your money.
Founders’ conflict or difference of opinion. It’s very common for four friends to group and start a business. It looks sexy at the beginning. But sometimes, conflict can be disconcerting to the point of breakup. One important point to keep in mind is to segregate roles quite clearly to avoid overlap of responsibilities. Role conflict has resulted in difference of opinion and quitting of one cofounder. The problem is this internal conflict showing its ugly head when business is doing well. If you follow the principle of good old Indian marriage, your business will be stable from conflict. Whatever the conflict, most Indian couples stay together. And succeed in life raising their children and creating wealth. I heard this from one successful entrepreneur. Two friends started a company and one friend had a difference of opinion when the company was not doing well. So he quit the company. The other friend turned the business around in a year and the old friend joined the company, but this time at 30% stake. What used to be 50% stake was diluted by 20% as the friend left the business and rejoined. When the company was sold out, the friend with 70% had a disproportionate say in the success. To avoid this, the entrepreneur suggested equal equity for all founders when business is starting up. Egos and sticking to one position could be detrimental to something you and your friends have built up hard. If you have a workaround for avoiding conflicts, then you stay on to become successful. One successful founding team that did well was Infosys. Seven friends stayed together. And made themselves richer and many more rich.
Money and friends, an awesome combination till it works well. So make it work!
[And do join us to celebrate failure at The Fail Summit]