Leap of Faith

Many people have ideas for a business. Almost everyone thinks of some idea at some point in his or her lives. But only a few individuals actually take the first steps to convert those ideas into a business.

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To be an entrepreneur, one has to have the conviction and belief in the idea that one is pursuing. Unless you have that conviction, you are unlikely to take the first step required to convert that idea from a ‘thought in your head’ to a ‘venture in the real world’.

Once you have a thought or an idea about something that can become a good business venture, you have to think hard about the potential of that concept, assess the merits and challenges, and once you feel convinced enough, you have to be able to take that leap of faith to go and implement that idea in the marketplace.

Many aspiring entrepreneurs tend to test and research, and retest and re-research their idea or concept and depend only on the research findings to pursue or drop that idea. Often, research cannot give you the answer to whether an idea will work or not. Sometimes, entrepreneurs have to take that leap of faith and that gut-feel to make a concept work. Entrepreneurs however, should NOT be blind risk takers. Successful entrepreneurs understand the risks and take necessary steps to overcome those risks and challenges. Planning well is what helps them deal with the risks and challenges better. Others who give up often do not think hard enough about addressing those challenges. They get scared of the challenges because they do not think of solutions.

Entrepreneurship requires entrepreneurs to pursue their vision often in the face skepticism and negative feedback on their ideas and plans from many individuals. Often these individuals who are skeptical of the plans are well meaning and may give an honest feedback based on their own assessment of the risk-reward dynamics of that idea. But mostly, entrepreneurs are able to spot opportunities where others see problems.

Entrepreneurs see opportunities before others see them. Entrepreneurs catch the wave on the up…. That’s why successful companies often have the ‘first-mover advantage’. Others, who follow or are me-too copycats to successful first-mover concepts, often have a much harder road to success, if they do succeed. Entrepreneurial thinking and aptitude is about seeing the ‘signals’ where others see ‘noise’.

The ability to take that leap of faith AFTER assessing the potential and understanding the risks allows entrepreneurs to be confident and optimistic about the opportunity and potential of an idea. Optimism and confidence create positivity and enthusiasm, which infects others around them. It helps entrepreneurs build teams, get early adopters, and often, helps them get investments from investors. (It is not without reason that entrepreneurs who are successful are good presenters and can tell their story with conviction and passion.)

Go ahead. Think hard about the opportunity around that idea and what you need to do to make it work. Seek mentoring. Get guidance from those who have more experience in operationalizing a business venture. Plan well. Execute efficiently. Be confident.

You will never fail. Either you will win or you will learn. And this learning will help you prepare even better for the next journey of your life. Go ahead. Take that leap of faith in your idea.

This article was first published in the SheroesCommunity on the 6th of March 2014.

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Failure is a part of the entrepreneurial journey

The general rule is that out of 100 new ventures, perhaps 50-60 will shut down by year 2, may be 20-30 will survive with their heads above water or at a lower scale than the aspiration was. May be 8 – 10 will be reasonably successful and may be 1 or 2 of these 100 startups will be ‘very’ successful.

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Just because a venture is not successful or shuts down does not mean that the entrepreneur has failed. It just means that this particular venture did not succeed. Simple.

Of course, aspire for success. But remember, there is no shame in having tried and not succeeding.Like everyone will advice you not to let success go to your head, remember to not let failure deter you.

Understand and evaluate your appetite for risks. Not just financial risks, but opportunity costs as well. Evaluate what the upside of success is and measure it against the risks. See if it makes sense.

More importantly, DO NOT start up on the basis on just your enthusiasm. Validate the concept with your potential customers/consumers, seek mentors who can guide you, seek advice and guidance in building a good business pan and see if the concept has a good business case.

Remember, entrepreneurs are NOT people who take unnecessary or unplanned risks. Good entrepreneurs make efforts to evaluate all the risks associated with a venture and take necessary steps to mitigate the risks.

Yet, you can fail. And it is all right. Plan for how you will deal with failure too. Failing or shutting down is not the end of your professional or your entrepreneurial journey. It just means that there could be a diversion from the originally intended path.

What value do angel investors bring to your company?

Angel investors participate in the ‘concept risk’ stage of the venture. i.e. when neither the idea,product/service, business model, operating plans nor the assumptions are proven.

It is also the stage where the startup is most  likely to be resource starved.

Angel investors should assist the founders with everything they can, to help the company go past the concept risk stage. Often, this could also be about providing guidance and perspective to help entrepreneurs take the right decisions. In many cases, introductions to potential customers; partners;employees and mentors etc. at this juncture of the journey is invaluable.

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Often angel investors have to be the adult supervisors, alerting the founders when they seem to go off the mark( read as ‘ strategy’) or when they are trying to do too many things rather than focusing on what is important.

When a startup is not doing well, angel investors have an enormously important role to play in keeping the founders motivated. Failures and challenges in a startup can be demotivating and challenging, making you feel terribly lonely. A good angel investor can make a big difference by  just saying “Its okay.. lets focus on what’s do be done”. Often, testing times are tests of character too.

I often tell entrepreneurs that even when they do not need the money, they should go and raise some funds from good angel investors. Because, it’s not just about the money, it’s about the investor’s involvement in your journey and their support when you need it, that counts and contributes to your success story.

How should equity be split between founders?

How much equity each founder gets in a startups has to be decided after serious deliberations on a number of factors. This is especially true when two or more friends (and worse, relatives) are coming together to start a venture.

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Whatever the split, assuming that equity should be split equally between all founders is an incorrect starting point. 

Each team will have their own dynamics, and emotional as well as rational reasons to decide the split of equity between them. I would urge them to consider the following factors:

  • Importance of the person’s function to the team (e.g. technology, marketing, etc.)
  • Criticality of that person being in the team
  • Is he/she the only person with that skill set in the team
  • The seniority of that person in professional life
  • What is the person giving up to come to this venture (opportunity cost)

Here’s a link to a neat tool to help you decide on the equity split Co-Founder Equity Calculator

How do I assess if my startup is doing well?

 

How well you are doing as a company is really not dependent on benchmarking versus how others in the same space/stage are doing. Each company may have chosen a different path towards similar goals, or it is also quite possible that the goals and aspirations of the companies could be very different.

Hence, how well you are doing or not doing, is  to be evaluated against what your own plans, goals and milestones were when you started the journey.

Not for one moment am I suggesting that you need to look at your original business plans as THE only road to follow. I have rarely seen any startup or early-stage company come even close to what their original milestones were in their business plans. Your original plans are merely a roadmap that you define to think through the different aspects of your startups journey. Once you hit the road, you have to make adjustments according to the weather conditions i.e. market realities. In some cases, the direction itself may have to be altered or changed all together. And it is perfectly all right to do that as long as it is a well-thought out plan, after taking into consideration all factors that may help you take a good and informed decision.

Therefore, if you have a well-defined business plan with your goals and milestones towards those goals well laid out, it should give you an indication of whether you are going in the right direction and at the right pace.

For your business, you need to identify what the key drivers are and that will give you leads on what you should measure your progress or success against. Each business will have its own set of key drivers or aspects on which success or failure will depend. Sales/revenues is usually just one of the indicators to measure the progress of a success of a startup. Other factors could be things like gross margins, employee efficiency, brand equity & brand familiarity within the relevant audiences, cost of customer acquisition, maturity of processes, proving of the business model, organization structure in place (or getting into place), key people on board, attrition rate, quality of contracts and respect of partners/vendors, etc. are all examples of indicators of what can be tracked to check if you are doing well as a business.