The prudent entrepreneur toolkit for startups6 min read . Updated: 12 Aug 2019, 08:33 PM IST
- Being financially prepared is key to surviving the transition to launching a business and becoming your own boss, but there are other bases to cover too
- If you are quitting your job to start a business, ensure you have a health insurance and a sufficient emergency fund
Even before the buzz about the tragic death of Cafe Coffee Day founder V.G. Siddhartha has had a chance to die down, reports have started coming in about Byju Raveendran, chief executive officer of Think & Learn and the developer of the education app Byju, becoming India’s newest billionaire. That entrepreneurship can take one to the highest of highs or lowest of lows is no mystery. A 2018 survey, titled Entrepreneurial India, released by IBM Institute for Business Value and Oxford Economics, revealed that 90% of Indian startups fail within the first five years of their inception. However, that doesn’t deter young Indians from choosing to take entrepreneurial journey.
Whether your 9-to-5 is getting on your nerves and you are dreaming of being your own boss, or you think you have the next big idea for a startup, being financially prepared is key to surviving the transition to entrepreneurship. We tell you the bases you need to cover before taking the plunge.
Know your business
At 39, Nithin Kamath is founder and chief executive officer of Zerodha, a retail trading platform which is profitable despite charging only a nominal rate for trading. But Kamath’s professional journey began over two decades ago. “Being a broker is not an idea that came to me in a coffee shop. I had been trading for 10-plus years (along with a small team of traders) when the 2008 stock market crash happened. I was feeling a little burnt out because day trading is a very stressful job," he said. It was around that time that Kamath came up with the idea of launching his own platform. Luckily, for him, his brother Nikhil joined him almost simultaneously. “Nikhil was a better trader, so he kept trading while I gave building a brokerage firm a shot," he said. Zerodha came into existence in 2010.
But the going wasn’t easy. “The period 2009-10 was probably the worst time to try and raise money," said Kamath. Fortunately for him, he already had an office space and a small team. “As much as ₹1.5 crore went into setting up the business, and it all came out of our savings," he said.
Kamath’s biggest advantage, perhaps, is his experience and understanding of the trade. “The 10 years I put into the business was an edge, like capital in itself. I saw the gap in the market in terms of what was available and what people wanted. Stock broking in India was a traditional business, and the world was evolving. People were going online, while India was still pretty offline. We wanted to see if we could do it online at a low cost," he said. Kamath’s advice to aspiring entrepreneurs is to work in the industry they plan to enter as a business owner for at least a year. “Finding a problem to solve without looking at the nuances around it is not the best idea," he said.
Secure the basics
It is a given that you need to prepare well before starting a business. But it’s unwise to assume that it only has to do with raising capital for the venture. “The first thing to ensure is that you can take care of day-to-day needs for some foreseeable period. You should have enough put away to cover expenses and liabilities for that period, along with a buffer for a few extra months," said Lovaii Navlakhi, founder and chief executive officer of International Money Matters Pvt. Ltd, a Sebi registered investment advisory.
If you are quitting your job to start a business, all the things you were used to as an employee should also be provisioned for, such as health insurance, said Navlakhi. “You might set yourself back right after starting out if someone in the family has to be hospitalized and you have to pay out of pocket," he added.
It’s also crucial to have a sufficiently large emergency fund. “When you start a business, your salary becomes zero and you end up investing in the business, which depletes the savings doubly fast. What I did was to calculate how much savings I have and how many months can I sustain with it," said Amit Kumar Agarwal, founder and chief executive officer of NoBroker.com, who, along with two other co-founders, poured his savings into the venture initially. Agarwal’s wife resumed working to see them through the lean period.
Easing into it
For Kamath, entrepreneurship has been a very slow process of transition. “It happened over the space of seven or eight years. I used to trade from home, then I figured it would be best to find a small office space just for myself. Then the team started growing slowly, and I moved to a bigger space," he said.
But for most young entrepreneurs, it’s more of a plunge. “A lot of people decide to become entrepreneurs because they don’t want to work for someone else and want to create value for themselves," said Navlakhi. But this can lead to ill thought-out decisions and venturing into something you are not ready for.
“A lot of people coming in to do business today, are doing it because of all the ‘hero’ stories. They are used to the comfort of jobs, and I don’t know if everyone is cut out to be a businessman," said Kamath. It is best to give yourself the time to evaluate whether you really want to start a venture or just need a break from the daily grind. If you do decide to start a business, keep in mind that any venture needs time to grow. “In this ecosystem, it’s very important for people to know that they are taken care of. So having your running costs covered is the most important thing so that you don’t panic because of debt or high interest outgo. When you panic, you make bad decisions," Kamath added.
Don’t be overwhelmed
Starting a business comes with in-built risk. It is important to understand what you are putting on the line before you venture into it. “When you are in your early 20s and are single, you can afford to take more risk and give entrepreneurship a shot without worrying about things like savings. But once you have a family to look after, it’s important to have something to fall back on. At the end of the day, only 1% of businesses survive, 99% of them fail. So the odds are stacked against you. It’s important to know what is the maximum you can lose and have a plan B in place," said Kamath.
Often entrepreneurs end up being overwhelmed by the scale of the task they have undertaken. “When they get into a new venture, they should be clear about what they should say ‘no’ to. Otherwise they can end up biting off more than they can chew," said Navlakhi.
But whether it is in terms of stress, volume of work, or the burden of debt or funding, it is never too late to own up to a failure or mistake and make amends. Responding to the debate on the amendments to the Insolvency and Bankruptcy Code (IBC) in Lok Sabha, finance minister Nirmala Sitharaman said, “Business failures in this country should not be a taboo, or looked down upon. On the contrary, we should give an honourable exit or resolution to the problem in letter and spirit of the IBC."
But the financial end of it is not the only one that needs attention. Failure or excessive debt can also take a huge emotional toll like it perhaps did in Siddhartha’s case. According to Navlakhi, it’s time Indians acknowledge the importance of mental health professionals.
Even if you find yourself in what seems to be a difficult situation, keep in mind that there is always a way out. Having a healthy support system of family and friends can also help see you through a difficult time.