Starting your own business can be exciting. But it also has its own set of challenges. We spoke to some founders to learn their mistakes and lessons
Before a start-up gains funding and starts becoming known among its target audience or customers as well as in the larger market, there comes a phase when the founders of the start-up go through enormous stress.
While the operational part of the business, scaling it up and making the business yield results and making it a success is a cause of concern for the start-up founders, many are also worried about meeting their regular day-to-day expenses like bill payments. For some who take a leap towards a start-up while having responsibilities like repayment of a home loan, the stress could be much more.
Just like any retail investor, the personal finance journey of start-up founders could also be full of ups and downs.
Some take exposure to low return yielding products in the early phases of their career, while there could be others who might not have made the most of some opportunity at the right time.
Also, there are some who struggled with the concept of saving and investing in their early working years. Another possibility is having gathered responsibilities in life, like repayment of a home loan, to realize later that it could be a hurdle in their start-up ambitions.
Don’t put all your gains from the older business into the new one
Vamsi Krishna, co-founder and CEO, Vedantu
We started working on our first business a few months after college at 22. We had minimum responsibilities in life then; so we could take the risk of doing a start-up. From that point till the time we exited that business a few years back, I had a practice of spending over 80% of my earnings.
But when we decided to exit the first business and were in the process of starting our current business, it dawned upon us that we now need to safeguard our personal finances and not put all of our gains from the older business in the new one. So we invested a small part of the gains in the new business and started looking out for external funding to grow the business.
I have also used those gains to stabilize my personal finances, and have left the management of that corpus to a wealth manager, as I don’t find time to track it on a regular basis. I don’t think I would like to change anything but one lesson learnt from this experience is, one must safeguard their personal finances as most entrepreneurs embark upon this journey when they are around 30.
In terms of money, one thing that I think I did right was that I saved 50-70% of my money while I was studying and also saved money during my professional stint in the United States during the initial phase of my career.
Later while working on our own venture, this saving habit and the money hence accumulated, came in handy and provided the much needed foundation for bootstrapping and starting up.
However, there have been some financial mistakes as well. I will cite one of the prominent mistakes I remember from my early professional days.
During my stint at PayPal, I had received a lot of employee stock options (ESOPs) or RSUs (Restricted Stock Units) but unfortunately, I did not time them properly and wasn’t able to maximize the value out of them.
Given a chance to go back in time, I would certainly avoid such a mistake.
Also retrospectively, I would like to manage my personal finances in an efficient manner. Ideally, I would like to allocate one to two hours every month for better planning of my personal finances.
While I have started to attempt this at present; however, a number of times, due to paucity of time, I am unable to devote the time that is required to plan and take stock of my personal finances actively.
To launch a start-up, ensure you have a debt-free life
When I started my career 15 years back, there was not much understanding about personal finances. Security of the money was the most important thing. Most of my money was lying in FDs or was used for big purchases. A part of investments was also going in some life insurance policies to get some of the tax benefits.
But as awareness improved, I also realized that the returns from bank deposits were very low. I started investing in MFs through fixed maturity plans. My money is now largely distributed across cash in bank, MFs, fixed maturity plans and some property. A good decision for me personally has been repaying the home-loan quickly using the surplus that I had. To do a start-up, it is very important to have a debt-free life. A debt free life means you can give 100% of your time and money to your company. Many people I know are unable to do a start-up as they have EMIs to pay.
Invest in SIPs as they help with consistent savings
In the initial phase of starting the business, I had to discipline myself to save for the times when the money was not coming in. Over time now, I have been able to get few things right regarding savings and investments. I strictly follow a hedging strategy which is designed to not invest more than 20-30% in one channel. Every month, I invest part of my salary in a recurring deposit, a part of it in stocks and rest of it in mutual funds.
From my experience, I have learnt to never invest all your money in one single investment channel. Also, I was inconsistent with my investments. I suggest one should always invest in SIPs as they help with consistent savings. Lastly, if you’re investing money for the purpose of savings, invest once a month and avoid tracking for returns everyday to check for profit or loss, especially if you’re not a trader.
Given a chance to go back, I would like to save more money in my early years of career, avoid unnecessary expenses and be consistent with SIPs.
Initially when I invested in SIPs and the markets fell, I got scared and stopped investing as I didn’t want to lose my money. But over the years I’ve learnt to keep investing no matter what and overcome that fear.