I was sitting with one of my friends who is a first generation entrepreneur, he runs an two ventures. One of his ventures is a successful one with a relatively constant revenue stream through good clientele; however the other one is still in a nascent stage to generate sustainable revenue stream. He was discussing his plans with me and talked about financing & costing of his ventures. I gave him some advices or consulting guidelines which I think are very generic and applicable to any start-up. I am listing down the same for my reference and for anyone else who might find them useful.
1- Discounted Expenses- When you get a waiver or discount from your regular expenses, like someone helped you with something for no charge. As a practice always attribute the expense as per the market price you would have paid, and pool the money saved as a separate kitty and treat it as investment. Be responsible for that money as you would be for your investors. This has two benefits; firstly it would always give an appropriate picture of your costing, if that waiver was not there and would provide a better view as far as long term sustainability of the company is considered. Secondly, the one time advantage money would not disappear by petty expense leakage which is a problem with a lot of start-ups. The expense leakage should be monitored and tightly leashed, making the company over all responsible for their working capital and investments.
2- Financing Amidst Firms- What I am pointing out is general practice in large organizations but for very nascent startups as my friends, I suggested the following. When you are running two ventures and you are diverting money generated from one to another for financing. The money should be clearly marked as debt or equity based investment and should be accounted in share of profits or interest. This actually helps you to adjudge the actually state of affairs and realistic view of your business and also factors in the opportunity cost of all the money being diverted. I strongly believe if you are diverting money without making both the companies accountable you are making expense for your whims and fantasies instead creating sustainable organization with solid business models.
3- Detach, Delegate, and Divulge- The 3D’s I believe are firm process grounds for any kind of start-up. More or less a lot of start-ups are born and created because of the exceeding confidence of the entrepreneur on executing the idea. But once you have founded the start-up the person needs to detach himself from his excellence and try to formulate a process to achieve the same. The process should be delegated to the employees/partners/stakeholders as applicable to share the ownership. The pitfalls and the objectivity of the process should be divulged to all the stakeholders. This would ensure replicable and scalable performance by the organization and ensure the entrepreneur to chase the other variables. Surprisingly, a lot of entrepreneurs get into the comfort zone of their specialty skills and lose focus on the scaling focus on the organizations which needs to imbibe in the DNA itself.
4- IPO Everyday- This is one test or question which I would tell every entrepreneur to ask themselves. When taking any major decision think how is this going to affect your IPO valuations. As a believer in crowd sourcing, the collective value & wisdom of market should not be ignored. If you are taking a step which is against what the traditional markets suggest may be you can take a while and re-think how this may affect your organization from every view point that an IPO would scrutinize. As a risk taker in you which is an inseparable part of an entrepreneur you might still take risky decisions, which is good but they should be consciously thought and very transparent to go ahead with.
by Prats | on Tuesday, December 1st, 2009 at 9:42 am | 
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December 1st, 2009 at 10:03 am
Awesome Prats!! The first two points are kick-ass and worth their weight in gold.Infact, with the second point even relatively large organizations suffer from it.It seems only justified to finance one venture out of another, but without accounting for it makes the books look real shoddy for both ventures.
As for the third, it is true but then i do not completely relate to it.IPO is not necessarily the final destination.Private companies do rather good themselves.Moreover, startups are all about executing ideas at the right time.When thinking how the mass will react to the change can be a time consuming process.Moreover, in the end it all boils down to profitability as far IPO market is concerned.If you have a green balance sheet, all is good.
My 2 cents:-)
December 1st, 2009 at 10:04 am
Awesome Prats!! The first two points are kick-ass and worth their weight in gold.Infact, with the second point even relatively large organizations suffer from it.It seems only justified to finance one venture out of another, but without accounting for it makes the books look real shoddy for both ventures.
As for the third, it is true but then i do not completely relate to it.IPO is not necessarily the final destination.Private companies do rather good themselves.Moreover, startups are all about executing ideas at the right time.When thinking how the mass will react to the change can be a time consuming process.Moreover, in the end it all boils down to profitability as far IPO market is concerned.If you have a green balance sheet, all is good.
My 2 cents:-)
PS: Sorry for multiple comments, some weird URL went in the first one.
December 1st, 2009 at 11:05 am
@Ankit: Thanks for the comment, I would take the opportunity to clarify myself here. When I say IPO everyday I mean to say that one should run & structure the company in a way they would be going for an IPO. I never meant that Start-Ups should necessarily to go for IPO, all I meant was everyday they should behave with responsibility, discipline and transparency that one would do for an IPO preparation. Too far fetched I would agree but still the closer the better, I personally believe.
December 1st, 2009 at 11:15 am
Hmmm…I get ur point.
Where we differed i guess is the point where u mention the collective wisdom of the “market” if by market u mean the intended customer audience, then true but if it refers to a probable investor for the IPO, then i think it gets a little too far fetched.
All in all, some great laundry points for startup to keep in mind and execute!! Cheers..
I can haz some relevant pictures sometime in the posts
Doubles my reading interest
December 1st, 2009 at 11:17 am
nice post buddy..really informative!!
December 1st, 2009 at 6:31 pm
Nice thoughts, the gist is, entrepreneurs should run their start ups more professionally, while keeping books of account organized, roles and responsibilities defined etc.
Particularly the first one, Entrepreneurs should consider opportunity costs, for his labor, or goodwill gestures of others, which most of start up fail to do, this gives wrong projections on profitability in initial phases which screw up future of start ups.
Though I agree with most of the points, but I am also worried too much of organization will kill the entrepreneurial spirit of a start up. Once start up passes a certain level of maturity and sustainability, entrepreneurs can always bring in discipline and organization..
December 1st, 2009 at 7:14 pm
@Atul: I agree too whatever you said, the idea is being professional maintaining Entrepreneurial spirits together maintaining balance.
December 1st, 2009 at 7:14 pm
@Rahul: Thanks